Thursday tips round-up: Sage, Numis and Tesco

6th Dec 2012 06:46

Tempus writes that business solutions provider Sage, which enjoys a market rating a little more than 13 times this year's earnings that would be more appropriate to a fast-growth business, seems to have gone ex-growth.Two points stand out from yesterday's results. One, a positive, that Sage is doing well converting its business to a subscriber model. Consumers are signing up for a longer-term relationship that makes future earnings more reliable. Subscription revenues, about two thirds of the total, were up by 6%, ahead of 2011's 5% rise. Second, a negative, that Sage One, the cloud-computing offering to small businesses, seems to be taking a while to get off the ground. The company says, not unreasonably, that new ventures take time while it builds relationships with routes to market, such as the big banks and telecoms companies.But revenues, on an organic basis, managed to grow by only 2% in the past financial year, half the rate in 2011. Pre-tax profits came in at £334.3m, a mere 1% ahead, although a final dividend of 6.67p gives a total 4% higher at 10.15p.To bring borrowings up to an appropriate level, £200m will have to be spent on acquisitions or further share buybacks next year. It will be interesting to see where the money goes. Until then, hold. Tempus writes that stockbroking increasingly looks like a game of last man standing. The value of trading on the London Stock Exchange's UK order book so far this year is down by 15%; no one is making a decent return.Numis is among those most suited to survive, because it had £41m in the bank at its September year-end. This is, unfortunately, £6.5m less than this time last year because of the need to pay dividends, 8p for the full year and about double earnings per share, and buy in shares for staff incentive schemes. The dividend was last covered three years ago; it will probably remain uncovered until some future recovery in the markets, not least because employees hold 43% of the shares and will not relish a dividend cut.Operating profits at Numis came in at £3.97m, against a comparable £1.82m last time. The broker has cut its costs by £3.3m without shrinking the areas of the market it covers. The good news is that 18 new corporate clients were won, not least because, one assumes, their previous brokers dropped out of the market, and Numis has a strong position in the retail bonds market, one of the few growth areas.The shares, for no apparent reason, have risen by 46% to 124.5p since the start of June. Unless you believe the markets are heading for some improbable renaissance, that 8p dividend looks like the only reason to hold them.Questor in The Telegraph reports that Tesco's share price gain yesterday was mostly down to the announcement that the Fresh & Easy boil was set to be lanced. The US unit had promised lots but never delivered, becoming a black hole for about £1bn of the company's cash. It is now under "strategic review". Questor thinks that the fact Tim Mason, the long-time head of Fresh & Easy, has left immediately is a signal that a complete exit is in prospect. Despite all the investment and management attention, the US operations generated just 1.0 per cent of group sales last year. Laurie McIlwee, Tesco Chief Financial Officer, told Questor yesterday that any cash realised from an exit would be spent first on improving the UK offering, not expanding into new space. South East Asia also remains an investment priority. The UK, which generates 66% of the group's revenue, needs to be put back on track and the group as a whole needs to be a sustained generator of cash in order for the share price to really get moving. The UK operations are not really in rude health right now, with like-for-like sales in the third quarter falling 0.6%. Its rating is still low and the shares should be good value at an earnings multiple of 10 times next year's forecasts. The yield is 4.3%. A recovery, however, is likely to take some time because it will partly rely on a global recovery in consumer sentiment. In the words of Warren Buffett who holds Tesco shares: "Value investors are not concerned with getting rich tomorrow. People who want to get rich quickly will not get rich at all. There is nothing wrong with getting rich slowly." Questor therefore keeps a buy. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.CM