Software giant Sage takes a tumble

Date posted: August 13th, 2012

It’s been a rough month for Sage Group, the UK’s largest listed software group. Earlier this month they had to report a significant lack of anticipated growth in their European branches, blaming a “toughening economic climate” on the continent.

In the same breath however they announced their acquisition of Brazilian software provider Folhamatic Group (a deal worth £125m), hoping to shift some of their focus away from Europe’s struggling market, which up until now had been the source of 60% of the company’s revenue and operating profit. As the world’s largest supplier of enterprise research planning software to small businesses the shift to South America’s largest country seemed logical.

However their scheme seems to have backfired. While the acquisition initially gave the company’s shares an 18% boost, lead analysts are warning that the market has overreacted to it. Although moving to Brazil’s relatively untouched SME Software market is a logical strategy to increase the company’s growing potential, the acquisition is to small to be as significant as the share boost seems to imply.

A series of questionable focus shifts within the company made its share fall even more. The most notable of these was the Sage Group announcement that they are increasing their focus on cloud computing. The announcement came after heavy criticism at the company’s expense for their lack of focus on cloud computing, one of the software industry’s current buzzwords. Analysts at UBS warned however that Sage’s shift in strategy towards cloud computing was “in its earliest days, and has risks”.

Following this month of less than stellar news Sage Group’s shares are now at their lowest point in over a month. As Europe’s market does not seems likely to improve significantly anytime soon the company is now looking hopefully at their North American Division, which is still reporting improvement as planned. Sage’s decision of bailing out of the American Healthcare Industry, after struggling for over six years against Obama’s healthcare reform plan (which moved the industries’ interest away from Sage Groups focus on providing doctors surgeries with management software) has proven to be the right one. Sage’s UK and Ireland divisions have also reported significantly more growth than their mainland Europe counterparts.

Monday, August 13th, 2012 Uncategorized