This discount is not unwarranted: the group, besides struggling to export its products - each country has its own regulations and accounting standards - faces genuine superstars in its sector, such as American Intuit and New Zealand's Xero.
In this respect, Sage has long suffered from a problem of organic growth, as well as a small but real erosion of profitability since the cloud era began about a decade ago; two issues that, of course, earn it skepticism from investors.
It is therefore the two big successive rounds of acquisitions - first in 2017 under Stephen Kelly, with the acquisitions of Intacct, Fairsail and Compass and the second in 2022 with the purchases of Lockstep, Futrli, Spherics and Mateo by Steve Hare, that have boosted its results.
On a more positive note, value creation from these acquisitions has been satisfactory, all the more so as the group has cleverly financed them through asset disposals. Year after year, over ten years (from 2016 to 2025), they helped revenue rise from £1.4bn to £2.5bn, and free cash flow increase from £254m to £470m.
More would be needed to impress the market, also due to a British tech sector that struggles to measure up to American champions. That is why the group's valuation continues to fluctuate at around 15x EBIT, before investment, despite encouraging 2025 annual results, paired with a record profit.
This is nothing like the case of Xero, for example, which operates in a comparable perimeter but which has managed to multiply its revenue tenfold in ten years, while generating free cash flow twice as high as the British group's.
In terms of revenue multiples, the NZ group still commands a valuation three times higher than that of Sage. Although this gap has tended to narrow in recent months with Xero's expansion slowing, catching some investors off guard.
