Overnight, Sage (SGE) issued its first-quarter fiscal 2015 trading update. Although the trading update does not provide any meaningful insight into the firm's specific financial performance, management reiterated Sage was on track to achieve 6% organic revenue growth and a 28% organic operating profit margin for the full year – in line with our expectations. Software subscription revenue growth was the primary driver for the quarter as the firm increasingly shifts its user base away from perpetual, on-premise products, and toward cloud products and connected services.
With new management at the helm, we think the company will look to consolidate its fragmented back office systems, which could spur better operating margins going forward. We will continue to monitor Sage's efforts here and await the company's capital markets day for clarity around long-term initiatives. Given the update, we retain our £4.05 fair value estimate and narrow economic moat rating.
Regionally, Europe had a good quarter with all major markets recording recurring revenue growth. However, North America had a soft quarter with payments contracting because of a high degree of competition. Sage is currently making a concerted effort to improve this line of the business, which we think will take at least 12 months. We think Sage's recent acquisition of PayChoice in the U.S. should help the firm offer a more rounded product in the region as it will provide additional payroll and human resources services. In addition, the acquisition will help accelerate Sage's shift to the cloud in North America given PayChoice's existing software-as-a-service (SaaS) platform.
So far we believe Sage has done a good job in gradually moving away from its legacy product platforms. We think management can continue to make operational improvements too, especially around general and administrative expenses. Still, with the company trading at a premium to our fair value, we would recommend investors look elsewhere for value.