It could already be argued that now could be a great time to buy into The Sage Group (LSE: SGE) following most recent trading details. And the current Brexit-related tension washing over financial markets adds another reason to pile into the FTSE 100 firm today.
The software giant is a share that I’ve long been tipping to jump in value following earlier heavier weakness in 2018. So naturally I’m pleased that the business has continued its share price ascent late last year and hit five-month peaks in the wake of its first-quarter trading statement being released last week.
Sage advised that organic revenues had pumped 7.6% higher between October and December, to £465m, the top line picking up momentum following the 6.8% rise it had reported in the fiscal year to September. It was possible that disappointing licence numbers could have delivered a hammer blow to investor sentiment over the past few months, but reassuring updates in this period have suggested that the firm has finally turned the corner following the disastrous profit warnings of last year.
Big in America
The accountancy specialist’s move to a subscription-based product model is showing tangible signs of paying off. Indeed, sales are really beginning to click through the gears in its key North American territory, where organic revenues rose by double-digit percentages (10.4% in the last fiscal quarter).
It stands to reason that City analysts expect Sage to keep its long-running record of earnings growth running — a 9% rise is forecast for fiscal 2019 — and therefore for dividends to keep rising as well. Last year’s total payout of 16.5p per share is predicted to rise to 17.8p in the present period, allowing investors to enjoy an inflation-mashing 2.9% yield.
Another Brexit-proof pick
Now Sage isn’t exactly cheap, the firm’s forward P/E ratio of 17.9 times sitting outside the widely-considered value benchmark of 15 times and below.
I would consider this a fair price given the huge promise of its subscription-based services across the globe, and I would argue that the same theory applies to DCC (LSE: DCC) which deals on a corresponding P/E multiple of 18.1 times.
A tad toppy on paper, sure, but the rate at which the business, which provides sales and marketing services to the energy, technology and healthcare segments across the globe, has reliably grown profits for many years now makes it worthy of this slight premium in my book. And particularly so in view of most recent financials which showed adjusted operating profit rise 15.9% in the six months to September, to £141.9m, a result that encouraged it to hike the mid-term dividend 10% to 44.98p per share.
For the full year to March 2019, City analysts are predicting a 136p total reward, up from the 122.98p shelled out last year and supported by a 13% earnings rise. A subsequent 2.1% dividend yield may not be the biggest, but for those seeking dividend increases year after year DCC (which has raised annual dividends relentlessly for a quarter of a century) is an unmissable pick today, and particularly given the Brexit-sized shadow threatening profits across much of the FTSE 100.
