FTSE 100 software giant Sage (LSE: SGE) and FTSE 250 gold miner Centamin (LSE: CEY) both reported issues earlier this year that sent their shares spiralling lower. However, today’s Q3 trading update from the former and half-year results from the latter reinforce my view that their setbacks were temporary and that the market overreacted. With the shares of both companies still at depressed levels, I see them as bargain buys today.
Short-term issues
Sage’s shares were trading at over 800p in the first weeks of January but reached a low of under 600p in mid-April. This was because the company lowered its previous guidance of 8% organic revenue growth to 7% for its financial year to 30 September. In its half-year results in May, management said it had identified the root causes of execution issues that had led to the lowered guidance and already made changes. In reporting on the half-year results, my Foolish colleague Paul Summers commented that the issues “have a short-term feel about them.”
The share price has recovered a bit since the April low (and is modestly higher on the back of today’s Q3 update) but at 630p remains well down from the start of the year. The company reported accelerating momentum in Q3, pulling nine-month growth in organic revenue up to 6.5% from 6.3% at the half-year and management reiterated the 7% growth guidance for the full-year.
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Attractive business
It looks to me very much as if Sage has overcome temporary issues. The business continues to have highly attractive fundamentals and prospects. Management today restated mid-term guidance that “organic revenue growth will reach 10% on a sustainable basis and organic operating profit margins will be at least 27%.” Long-term, the margin aim is at least 30%.
At the start of the year, Sage was trading on a 12-month forward price-to-earnings (P/E) ratio of 23, with a prospective dividend yield of 2.2%. I’ve always considered the stock a good value buy when the P/E is below 20. Currently, it’s less than 18 and the prospective dividend yield is 2.8%.
More buyable than ever
Shares of Centamin plunged on 25 May when the company released an unscheduled production update. It revised its guidance for 2018 for its Sukari Gold Mine in Egypt, as detailed in the table below.
| New guidance | Previous guidance | |
| Production (ounces) | 505,000 to 515,000 | 580,000 |
| Cash cost of production ($ per ounce) | 625 to 640 | 555 |
| All-in sustaining costs ($ per ounce) | 875 to 890 | 770 |
The reasons for the lowered guidance were that grades were below budget in a low-grade transitional zone in the open pit, while issues of production equipment availability impacted underground grade. I considered these to be temporary setbacks and with the shares having previously traded at over 160p, I considered the stock good value at 129p.
So far, the market hasn’t agreed with me. The shares are now at around 113p and are little moved by today’s half-year report. In this, the company maintained its revised production and cost guidance, and said improvements in open pit grade were already being realised and that improvement in underground grade is set to come through in Q3.
Trading on a current-year forecast P/E of 14.7, falling to 12.2 next year on the back of forecast 20% earnings growth, Centamin also offers a prospective 4.1% dividend yield, rising to 6.1% next year. The shares look more buyable than ever to me at their current level.
