Shares in Sage (LSE: SGE) have fallen by 4% today even though the company has released a relatively positive set of full-year results. Currency fluctuations to one side, Sage has been able to deliver organic revenue growth of 6% versus last year, with organic recurring revenue rising by 9% versus 2014. Software subscription contracts were the primary driver of this, with 28% growth in the annualised value of the software subscriber base being delivered.
Sage has also completed a review of its business and expects to realise at least 50m in annualised run-rate cost savings by the end of next year. And, with Sage also simplifying its product categories into Growth and Heritage, it is focusing 87% of R&D spend on the Growth area and this should lead to improved long term prospects for the company.
Despite its upbeat results, bright future and todays share price fall, Sage appears to be fully valued. For example, it trades on a price to earnings (P/E) ratio of 21 and, with the companys bottom line due to rise by just 6% in the current financial year, it appears to be lacking a clear catalyst to push its shares higher. This, plus a dividend yield of 2.5%, indicates that investing elsewhere could be a wise move.
Similarly, distribution and outsourcing company Bunzl (LSE: BNZL) also appears to lack capital growth potential. Certainly, it has a very diverse geographical footprint and a hugely successful business model which has delivered five consecutive years of annual growth. In fact, its bottom line has risen at an annualised rate of 9% during the last five years and, with further growth forecast for the next two years, Bunzl remains a very robust company.
However, after rising by 168% in the last five years its shares now trade on a P/E ratio of 21.9. This indicates that there is little scope for share price gains especially since its 3.5% annualised forecast growth rate of the next two years is only around half that of the wider index. And, with a yield of just 1.9%, Bunzl lacks income appeal, too.
One stock which does appear to be worth buying is Unilever (LSE: ULVR). Certainly, its shares are roughly as expensive as those of either Sage or Bunzl, with them trading on a P/E ratio of 21.7, but Unilever has stronger growth potential than either of them. For example, in the current year its bottom line is due to rise by 14%; more than double the growth rate of either Sage or Bunzl.
Looking further ahead, Unilever has an exceptionally strong position in emerging markets which it has built up over a number of years. In fact, it has spent billions on marketing and on ensuring that it has efficient supply chains to enable its brands to become the most popular within their segment across the emerging world, which helps to explain why Unilever is able to rely on the developing world for the majority of its sales.
Furthermore, with the growth potential from the developing world being significant as middle earners expand in size by hundreds of millions during the next couple of decades, Unilever appears to be an exceptional long term buy.
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