Exane upgrades Sage to 'outperform'

Exane BNP Paribas has upgraded software group Sage to ‘outperform’ from ‘neutral’ and lifted price target to 750p from 640p.

The bank noted that Sage has de-rated on uninspiring top-line trends, including a slight hiccup in the first quarter of 2017, and perhaps the lower attraction of defensive cash return stories.

The stock has been the worst performer in European software on both a three- and 12-month view, despite strong earnings per share upgrades, and is now trading at an EV/EBITA calendar 2017 earnings of 13.8x, or a 16% discount to peers.

Exane said the recent issues such as those in France can be fixed, which should get Sage back to its targeted organic growth of more than 6% as soon as the second quarter.

“Moreover, recent go-to-market investments should produce benefits in the coming years. Sage has launched a £100m cost-cutting programme. The savings will be reinvested in the business in the short-term, meaning margin progression should remain limited in FY17.

“Longer-term, however, some of the savings (we estimate 1/3) should flow back at the EBIT level. We forecast a 200 basis points margin expansion from FY17e (27%) to FY19e (29%).”

At 1045 GMT, the shares were up 1.7% to 647.50p.