Analysts upbeat on Sage trading news

Analysts took a positive view on Sage Group’s brief trading update this
morning, after the accounting software group announced that it saw revenues and
profits in line with expectations for the half year.

The FTSE 100 company, led by chief executive Paul Walker and finance director
Paul Harrison, said interim revenues were on track to reach £444m, with
operating profit set to hit £115m and pre-tax profit to reach £111m.

Analysts at Credit Suisse said the results followed a period of heavy
acquisition activity, but that after this and the impact of IFRS were stripped
out, Sage was in line to generate organic growth of about 6%.

The research team of Matthew Hammond, James Clark and Rajesh Balasubramanian
also said that they saw more room on Sage’s balance sheet for further
acquisitions. Recently, the group has forked out to buy Visma, Adonix and Verus.

‘The Visma acquisition will, we believe, move the balance sheet to
around three times debt to EBITDA. Given the recurring nature of much of Sage’s
revenue we believe that 4-5 times debt to EBITDA could easily be supported. As a
result, at the bottom end of that range we believe that there is still around
another £200-250m of capacity for acquisitions,’ the analysts said in a research

Graham Brown from Cheuvreux was also upbeat on the stock after the update and
predicted further acquisitions for the group.

‘The shares have underperformed the UK market by 5% in the year to date
despite seeing the evidence (the Visma acquisition) to support a 4% upgrade – we
believe that further earnings enhancing deals are a prospect for the current
year,’ Brown wrote in a note.

Sage shares were trading 1p or 0.38% up at 267p on the back of the news. Sage
will release interim results on 9 May.

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