Sage sees operating profit margin at 'lower end' of guidance
Business technology provider Sage saw organic and recurring revenues increase in the first nine months of the year, putting it on track to "slightly exceed" full-year guidance but a warning that the organic operating profit margin would be "at the lower end" of guidance sent shares falling.
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Organic revenues across the group as a whole increased 5.3% to £476m in the third quarter and 5.9% to £1.41bn in the first nine months of the year, while recurring revenues improved 11.4% to £405m in the third quarter and 10.6% to £1.18bn year-to-date.
Sage said the improved revenue performance was underpinned by software subscription growth of 28.3% to £752m and also noted that "strong" recurring revenue growth had been boosted by tailwinds from weak comparatives in the prior year.
Software and software-related services revenue declined 15.5% to £195m for the nine months ended 30 June, reflecting the focus on driving high-quality subscription revenue, as well as some underperformance in X3 licences and services.
Chief financial officer Jonathan Howell said: "We remain encouraged by the progress made in recurring revenue in the first nine months of FY19, reflecting Sage's focus on high-quality subscription and recurring revenue as we continue the transition to becoming a great SaaS company."
However, Sage's CFO also warned that organic operating profit margin would be "at the lower end of the guided range of 23-25%".
Analysts at Shore Capital pointed out that Sage had guided for SSRS and processing revenue to be at the lower end or below the range of "flat to mid-single-digit decline" but said it was now looking at "a greater than 13% decline", which they provisionally expect to reduce full-year organic growth to "slightly under 6%".
"Sage was priced for upgrades going into today's update which have not materialised due to declining legacy business. While we were early to move to a 'hold' recommendation (back in March), we believe the shares will likely lose upside momentum in the near-term."
At 0815 BST, Sage shares were down 9.9% to 735.60p.