One blue-chip stock stands out to me as a FTSE 100 bargain right now. That company is accounting software business Sage (LSE: SGE).
FTSE 100 bargain
Accounting software is, in many ways, quite a defensive business. As any small business owner who has used accounting software regularly will tell you, finding a good software package is vital. And once you found one, changing to something else can be a nightmare.
Therefore, companies like Sage tend to have a steady and predictable income stream. That suggests that the coronavirus crisis might not have a considerable impact on the group.
Although Sage will probably lose some of its customers over the next few weeks and months as businesses struggle to survive, its customers that remain solvent are unlikely to be changing their software providers at such a challenging time.
Recent trading updates from the business support this view. In a trading update published on the 6 April, the company declared that organic growth in recurring revenue, which is 90% of total group sales, was ahead of forecasts for the six months to the end of March.
However, the company also said it is impossible to quantify the impact the coronavirus crisis will have on sales at this stage.
With that being the case, management expects organic recurring revenue growth will be below the previously guided range of 8% to 9% for the current financial year.
This forecast is disappointing, but compared to other FTSE 100 stocks, it’s quite good.
Indeed, many of Sage’s blue-chip peers are now forecasting a decline in revenues for the full year. The company stands out for the fact that it is still expecting organic growth.
That’s why Sage looks to be a FTSE 100 bargain at current levels. After recent declines, the stock is trading at a price-to-earnings (P/E) ratio of 21. This is below its long-term average of around 25.
On top of this, the group also appears committed to its dividend. Management has suspended the company’s £250m share buyback – to shore up liquidity – but the dividend is still in place. After recent declines, the stock supports a dividend yield of around 3%.
Handsome returns
Considering all of the above, it looks as if this FTSE 100 bargain could deliver handsome returns for investors over the next 12 to 24 months. Before the coronavirus outbreak, shares in Sage were trading at around 810p.
A return to this level could produce a capital gain of nearly 39%.
On top of this, the company’s 3% dividend yield will add another 6% over the next 24 months. This implies that investors buying today could see a total return of around 45% over the next two years.
With so many FTSE 100 stocks cutting their payouts to shareholders and warning on profits, Sage stands out as a FTSE 100 bargain in stormy waters.
As such, if you’re looking for a high-quality stock to buy in the current market, it might be worth taking a look at this UK software champion.