Sage slumps on Deutsche downgrade to 'sell'

The competitive situation in Sage's core mid-market franchise appears to be worsening, Deutsche Bank said on Monday as it downgraded the software company to 'sell' from 'hold' and cut the price target to 540p from 630p.

The bank said it has spoken to a number of accountants and resellers over the last few weeks across the UK, US and Australia, along with senior figures from key competitors Xerox and Intuit.

"Entry level players at far lower price points are moving upmarket and are building functionality either internally or through third party platform partners. Higher end competitors also appear to be gradually gaining share from Sage's core user and reseller base," it said.

DB highlighted Microsoft as the standout player here, with the Dynamics suite cited by Sage resellers as the most frequently seen competitor.

The bank argued that Sage has done little to arrest this decline, at least on the product side of things.

"Resellers consistently told us that Sage's core products (50,100, 200, 300), while fit for purpose, have seen little innovation in recent years and the strategy of driving maintenance users onto subscription at higher prices is beginning to cause some resentment among customers with increasingly viable alternatives."

Deutsche went on to say that Sage's full-year and medium-term guidance are unrealistic, adding that organic growth is likely to slow over the medium term.

At 1323 BST, the shares were down 5.4% to 629.80p.