Thursday tips round-up: Sage, Homebuilders

Analysts are sceptical about Sage’s newly arrived chief executive, Stephen Kelly’s, strategic plans for the software manufacturer. Nevertheless, the fact remains that Mr.Kelly’s track record at his previous outfit, Micro Focus, shows that he is not afraid of ‘shaking things up’ if necessary. Indeed, he has only been at his new job for a month now. Hence, it should come as little surprise that for now he has opted to simply reaffirm the targets set out by his predecessor. Organic revenues are to grow 6% and operating margins set to hit 28%, both are just slightly above the results achieved by the firm in the year to the end of September.

As well, the new boss promised investors a capital markets day next summer. He is expected to lay out his plans on that occasion. So while the stock is now changing hands on almost 18 times earnings, “I would be inclined to back Mr Kelly and tuck them away for the longer term,” wrote The Times’s Tempus.

Despite the large rise seen in homebuilder stocks since the worst moments of the crisis, the government’s plans show that Westminster has the sector’s back. So yes, the best of the share price gains may now lie behind, but those companies’ profitability and cash returns through dividends should remain in place. Furthermore, in fact, the share prices in the sector are not looking all that expensive.

Stock in Persimmon, for example, is changing hands at 12.8 times earnings. Redrow and Bellway are at even more attractive valuations, trading on approximately eight times and nine times forecast earnings. Backing up the investment case, worries the housing market is running out of steam have turned out to be baseless, with yesterday’s reduction in stamp duty underpinning profits at many of those outfits, says The Daily Telegraph’s Questor column.