It’s straightforward to complain in regards to the dearth of huge tech shares listed in London in comparison with New York. However there are some corporations on this aspect of the pond which have confirmed they’ve what it takes to make it within the typically extremely aggressive tech world.

One jumped 19% in early buying and selling in the present day (20 November) after the market digested its newest annual outcomes, which confirmed a 55% development in primary earnings per share.

Easy however confirmed enterprise mannequin

The share in query is accounting software program specialist Sage (LSE: SGE).

Sage’s enterprise mannequin is pretty easy however has been worthwhile over the course of a long time. It helps small- and medium-sized companies handle their accounting merchandise, because of a collection of software program services.

I like that as a market and in addition as a mannequin. The demand is excessive and more likely to stay that means. The service is ‘sticky‘, that means that when corporations have gotten used to utilizing Sage and their workers really feel snug with it, there’s inconvenience and a time value in switching to rivals.

That helps give Sage pricing energy, as was obvious in final 12 months’s efficiency. Income grew 7% to £2.3bn. Revenue after tax leapt 53% to £323m. Which means the corporate’s internet revenue margin got here in at 13.9%.

Lengthy-term dividend development

That revenue after tax greater than covers the annual dividend, even after a proposed enhance of 6%. Certainly, the corporate feels so flush it additionally introduced plans for a share buyback of up to £400m. Given the present share price (up 75% from early final 12 months), I personally don’t see that as an important use of spare money.

Sage has a progressive dividend coverage, that means it goals to develop its payout per share yearly. It has already achieved so for a few years and, as its enterprise mannequin continues to be extremely money generative, I anticipate that if issues go easily it would hold doing so.

Nonetheless, whereas I like the expansion prospects, I’m much less excited in regards to the yield. That at the moment stands at 1.5%. If the dividend per share saved rising on the 6% achieved final 12 months, it will take round 14 years for the yield merely to return according to the present FTSE 100 common (presuming a flat share price).

Robust enterprise, excessive valuation

Nor do I feel the shares provide me compelling worth in the intervening time. Because the sharp motion in income final 12 months demonstrates, this isn’t a enterprise that’s immune from important volatility. Dangers I see on the horizon embody the flipside of one of many enterprise’s alternatives, specifically scaling up.

Doing that efficiently may assist develop revenues forward of prices, boosting revenue margins. However a misstep, for instance misunderstanding the variations between particular markets, could possibly be pricey.

On stability although, I proceed to see this as a wonderful firm with robust prospects. But it surely has a chunky tech share price valuation connected. The £13bn market capitalisation might look low-cost by some US requirements — however it’s too pricey for my tastes.