Sage gains as it posts rise in third-quarter revenue, says on track for full year

Shares in Sage rose after it said organic revenue rose by 6.6% in the first nine months of the year and reiterated its expectations for at least 6% organic growth for the full year.

The business software company also said it was confident the business remains on course for full-year guidance of 28% operating margin.

It said organic software and software-related services revenue grew by 2% for the first nine months of the year, with third-quarter growth of 1.2% compared to a relatively weak third quarter in 2014, which saw a 3.4% contraction.

The group said its operating cash generation remains strong. During the quarter, an interim dividend of £48m was paid to shareholders and there were no share repurchases or acquisitions. Net debt at 30 June 2015 was £467m.

Sage said foreign exchange rate headwinds continued to be a feature in the third quarter, reflecting the strength of sterling relative to a number of currencies in territories in which Sage operates, most notably, the euro and the Brazilian Real.

Chief financial officer Steve Hare said: “The business performance in the quarter showed continued momentum in recurring revenue growth and overall the performance was encouraging, with the revenue growth rates flattered by a weaker third-quarter last year.

“As we continue to transition the business towards higher quality revenue growth, through Sage's Customer for Life strategy we anticipate that some quarters will be stronger than others and we are committed to sustainable, profitable growth generating consistent operating margins, yielding strong free cash flow and progressive dividends."

Panmure Gordon said it was “a typically subdued but reassuring update,” adding that net debt looks a touch better than it expected suggesting good cash conversion – a function of the drive to software subscription.

It rates the stock at ‘hold’ with a 517p price target.

Investec said the underlying improvement is probably enough to broadly support a heavily re-rated share price.

“Our view remains that the short term is full of low hanging fruit, but the mid-term presents more fundamental strategic challenges,” it said, as it reiterated its ‘hold’ rating and 535p price target.

At 12:00, shares were up 1.5% at 543.50p.