The FTSE 100Its technology is major Sage Group (LSE: SGE) was recently downgraded to ‘Sell’ Goldman Sachs. It started the 5% slide in age shares yesterday from 741p to 706p.
Software companies have been on my watchlist for some time. Here I look at the possible causes of the downgrade and analyze its recent financial and business strategies to see if it can still be bought for my portfolio.
The cause of the decline
Analysts at Goldman Sachs have moved the stock from neutral to sell, with a target price of p00p. The reason mentioned is lackMargin expansion“From a UK financial software company. Considering the dynamic software and cloud computing space, Sage Group’s focus on revenue generation on margin expansion is a concern for bankers.
I think this assessment has validity. While the recurring revenue model through software subscriptions looks attractive, I think it influences innovation. Focusing on customer retention and acquisitions for existing products can affect a company’s ability to expand its industry into new revenue streams, in my opinion.
Competition and innovation
Age Shi currently provides automated invoicing / accounting software, HR management systems and asset management software. Interestingly, Goldman Sachs uses Amazon Web Services (AWS), a competitor to Sage Group.
Comparisons with AWS are important here because of the expansion of WS in the United States. Although age has increased repeat revenue by ur% in this region, I think AWS already has a strong hold on the space. Added like other competitors Microsoft (Blue), Google, And IBM, And these shi may be overshadowed by these industry giants.
Also, AWS provides a range of customizable, sector-specific solutions. It facilitates software development, machine learning and analysis with traditional thematic accounting and cloud services. Age shi focuses on medium and small businesses and has low targets. I think this is an obstacle to the age margin expansion effort, as Goldman Sachs has highlighted.
Should I invest in Sage shares?
Age Shi has carved a niche for himself in Europe and America. Its subscription model has more than 90% customer retention statistics. Shows financial strength and the company has a good history of revenue generation. In the first nine months of 2021, recurring revenue increased 5% to £ 1.2bn, supported by an increase in software subscriptions by 11% to £ 920m. The 7% increase in North America was primarily due to age Intact, Its construction-centric accounting software. This again tells me that sector-based products work well in overseas markets. This is an area that I see as an early age weakness.
Looking at the earnings of investors, the share price of Six Shi has risen 17.5% in the last six months. But, in the last five years, returns have been disappointing -3.3%. UK tech companies are a defensive option. Its focus on strengthening its existing product line and customer service is commendable. But is this a prudent strategy for innovation-driven software? I don’t think so.
I am optimistic about the UK technology industry as a whole. But there are other companies in the space that seem like a much better investment for my portfolio right now. I would prefer long term investment BAE system And BATM improved communication Share today.
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Suraj Radhakrishnan has no position in any of the mentioned shares. Teresa Carsten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of The Motley Flower. Motley Flower UK owns and recommends shares of Microsoft. Motley Flowers UK has recommended Sage Group. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.