Sage Group SGE on Wednesday announced a £400 million share buyback and said strong sales in its Cloud business had boosted annual revenue.

The accounting software firm said pretax profit in the year to Sept. 30, climbed 51% to £426 million from £282 million.

Underlying operating profit rose 21% to £529 million from £438 million. The operating profit margin improved to 22.7% from 20.5%.

Revenue was up 6.8% at £2.33 billion from £2.18 billion. Underlying revenue growth was 9%, though Sage noted a 2 percentage point hit from a foreign exchange headwind due to sterling strength.

Sales reflected the strength of the subscription-based recurring revenue model, Sage said.

Underlying annualized recurring revenue rose 11% to £2.34 billion, with growth across all regions balanced between new and existing customers.

The renewal rate by value of 101% was little changed from 102% on-year, reflecting strong retention rates and a good level of sales to existing customers.

Sage Business Cloud revenue increased by 16% to £1.87 billion from £1.62 billion.

Subscription penetration increased to 82% from 79% driven by growth in subscription revenue of 13% to £1.91 billion from £1.69 billion.

“Sage has delivered another successful year, achieving strong, broad-based revenue growth together with significantly higher profits and cash flows. We also invested further in our products and continued to execute well against our strategic priorities,” Chief Executive Officer Steve Hare said.

Citi said it was a “solid” update with revenue growth broadly in-line and operating profit 3% ahead of expectations.

“We expect consensus operating profit view for 2025 to move up by low to mid-single digit percentage. Investor positioning in Sage has seen some improvement over the last month (after staying muted since May) but there has been persistent fear of further growth deceleration, and we see the steady growth dynamics and solid operating execution to be seen favorably,” the broker commented.

In response, shares in Sage leapt 16% to 1,251.50p in London on Wednesday morning. Unsurprisingly this made Sage the best performing stock in the FTSE 100 which was up 0.2%.

Key Morningstar Metrics for Sage

• Fair Value Estimate: £8.80
• Morningstar Rating: ★★
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: Medium

Sage Group Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct. Latest price as of 12:44 PM GMT.

In May, shares in Sage fell sharply after the firm gave guidance which fell short of expectations.

CEO Hare noted small and mid-sized businesses remain “resilient, despite the ongoing macroeconomic uncertainty, and they continue to choose Sage to help them become more productive and efficient.”

“Building on our progress to date, we look forward to delivering further sustainable growth in the year ahead.”

Sage announced a final dividend of 13.50 pence per share, an increase of 5.9% from 12.75p a year prior. It took its total dividend to 20.45p, up 6.0%, from 19.30p.

In addition, Sage announced a buyback of up to £400 million. The program kicks off Wednesday and will end by June 3.

Free cash flow increased by 30% to £524 million, supported by excellent underlying cash conversion of 123%, reflecting growth in subscription revenue and continued good working capital management.

Looking ahead, Sage said: “Sage enters FY25 with good momentum driven by consistent strategic execution. Looking ahead, we expect organic total revenue growth in FY25 to be 9% or above. Operating margins are expected to trend upwards in FY25 and beyond, as we focus on efficiently scaling the group.”

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.