Insider: FTSE 100 chiefs sell large stakes after results rally

An incredible surge to a record high convinced bosses at this blue-chip to trouser significant profits. But there’s bargain hunting at a FTSE 250 firm where numbers weren’t so well received.

25th November 2024 07:59

Graeme Evans from interactive investor

The top two directors of Sage Group (The) (LSE:SGE) have cashed in on a momentous week for the accounting software business by selling a combined £1.8 million stake at near record prices.

The disposals by chief executive Steve Hare and finance boss Jonathan Howell took place the day after they delighted investors with forecast-beating fourth quarter sales growth.

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The accompanying annual results and plans for a £400 million share buyback sent the FTSE 100-listed stock up by as much as 20% to beat the all-time high of 1,282p seen in March.

One industry analyst said the events were reminiscent of the turnaround that propelled the shares of Meta Platforms after a very negative run heading into 2023’s annual results.

Until last week’s results, Sage shares were down 25% on their March peak following sequential declines in the rate of revenues growth. This changed on Wednesday with a quarterly rise of 9.4% and a forecast that it will achieve 9% or above in the current year.

Sage also said that margins were expected to trend upwards in 2025 and beyond, having achieved a 220 basis points increase to 22.7% through disciplined cost management in 2024.

It also highlighted good progress with Sage Copilot, its generative AI-based digital assistant, and said small and mid-sized businesses remain resilient despite the economic uncertainty,

The company, which specialises in finance, HR and payroll software tools, generated about 45% of its revenues in North America during the year.

Cloud and subscription growth means about 97% of revenues are recurring, providing investors with greater top line visibility. This progress follows the 2017 transformative acquisition of California-based cloud accounting software firm Intacct.

Bank of America believes there’s more to come from Sage after lifting its price target to 1,523p.

The bank upgraded its earnings estimates by 5-8% to reflect the margin outlook and its buyback assumptions, adding that a valuation 10% above EU peers looked to be warranted.

Deutsche Bank, which made the Meta comparison, increased its price target to 1,350p alongside a Hold recommendation.

Panmure Liberum praised the work of management over recent years but said it continued to be concerned by the competitive landscape, given that Sage is up against large, well-funded firms such as Intuit business Quickbooks, Xero and Oracle Netsuite.

The broker’s analysis suggests that fair value for the shares is 1,125p, which compares with the record of 1,304.5p achieved by the end of last week.

The shares finished strongly on Friday after a brief wobble in the morning as Sage disclosed that Hare and Howell had sold 70,000 shares each at 1,264p and 1,270p respectively.

The company added that Hare still held 690,188 shares worth about £8.8 million, representing 762% of salary against his shareholding requirement of 350%. Howell has 302,239 shares, which is worth £3.9 million and 509% of salary against his 275% requirement.

Hare and Howell have been in their roles since the latter part of 2018, when shares were 580p. The company is due to pay a dividend of 13.05p a share on 11 February, increasing the total for the year by 6% to 20.45p.

Some Mitie bargain hunting

MITIE Group (LSE:MTO) chief executive Phil Bentley has spent £217,000 increasing his stake after the value of the FTSE 250 support services firm fell in the wake of Thursday’s half-year results.

The former British Gas boss, who has run Mitie since 2016, paid 108.6p for each share compared with the peak for the year near 125p set in August.

Bentley had earlier reported good progress in the first six months of Mitie’s new three-year strategic plan, having achieved high-single-digit organic growth and 14% rise in operating profits before one-offs to £101 million.

He said the strategic plan targets were underpinned by highly attractive macro trends as customers in the public and private sectors look to Mitie to reduce their carbon footprint, modernise buildings or implement power upgrades and grid connections.

Bentley added: “We are also well positioned to support the government in its commitment to invest in the UK’s defence capabilities and the modernisation of its built estate, alongside significant capital funding for schools and the NHS.”

The company reiterated confidence in 2025 expectations, but shares fell 3% on Thursday due to concerns over the bill from changes to employers’ National Insurance contributions from April.

Mitie’s current estimate is £25 million of additional costs in the 2025/26 financial year, taking into account contractual and commercial recovery through pricing as well as margin enhancement initiatives and other management actions.

The group, which employs about 72,000 people, pointed out it had a strong track record of managing inflationary costs, including annual increases in the National Living Wage.

Panmure Liberum maintained its Buy recommendation and target price of 135p, noting that a 2025 multiple of 9.6 times earnings is undemanding given the momentum.

Bentley held 13.2 million shares at the end of March, equivalent to 1,200% of his £900,000 salary. His total remuneration for 2023/24 amounted to £14.7 million, driven by £9.5 million from a one-off plan put in place around the time of Mitie’s acquisition of Interserve in 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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