Tuesday tips round-up: Tesco, Sage

23rd Sep 2014 07:02

There is speculation that Tesco may have been too optimistic when forecasting how successful its promotions – and hence promotion related payments from suppliers – would be. Nevertheless, when the company does finally come round to releasing its results it will have a lot of explaining to do. After all, this is a grocer, not a derivatives trading house – it should not be that difficult for investors to understand what has been going on at the firm.Just as important is whether Monday's warning is the end of the story, or stretches back several years even. Should it turn out to be just a matter of the timing of profit recognition then all of this storm could yet blow over. Yet uncertainty around the soundness of a company's book keeping can quickly collapse investors' trust, says the FT's Lex column.There is speculation that Tesco may have been too optimistic when forecasting how successful its promotions – and hence promotion related payments from suppliers – would be. Nevertheless, when the company does finally come round to releasing its results it will have a lot of explaining to do. After all, this is a grocer, not a derivatives trading house – it should not be that difficult for investors to understand what has been going on at the firm.Just as important is whether Monday's warning is the end of the story, or stretches back several years even. Should it turn out to be just a matter of the timing of profit recognition then all of this storm could yet blow over. Yet uncertainty around the soundness of a company's book keeping can quickly collapse investors' trust, says the FT's Lex column.Accounting software developer Sage has purchased US HR and payroll software firm Paychoice for four times' revenues or £96.9m. The acquisition plugs a significant hole in the outfit's product offering Stateside and will allow for a faster transition towards the cloud. Yes, the purchase means that investors can say goodbye to any special dividend this year, but the deal should be earnings accretive from the financial year after next.Borrowings however are on target and Sage is confident in its ability to grow organic revenues at its 6% target rate as it increases the proportion of subscription revenues in its sales stream. Changing hands on 17 times' earnings and with analysts expecting some recovery in its core market in the fourth quarter the stock – which offers a 3% dividend yield - is worth holding for the long-tem, writes The Times's Tempus.