The Sage Group PLC (LSE:SGE), the accounting software group, is expected to report £572 million in sales for the first quarter of 2024 on Thursday, according to UBS analysts.
This would represent a 10.1% organic increase in sales, but less than the 10.6% growth it recorded in the fourth quarter of 2023, due to foreign currency exchange adjustments, the analysts said.
UBS maintained its ‘sell’ rating for the shares but analysts increased their share price expectations for the company, from 950p per share to 1,030p per share, versus a 1,154.5p currently.
Analysts said that Sage's annual recurring revenue (ARR) grew 2% quarter over quarter in the opening three months of 2023, and that this historic growth could represent a ‘hurdle’ to beat in the most recent quarter.
A slump in the growth of its cloud-native platform could present a risk to its share price, but analysts expect its yearly outlook will remain unchanged.
“Given the high recurring revenue base we do not expect any major deceleration will be evident, but comments regarding the level of sequential growth in ARR achieved in the quarter and the velocity of cloud native revenues will likely dictate the share price reaction,” the bank’s analysts said in a research note on Wednesday.
“Cloud native growth rates at Sage slowed throughout FY23 and we see a risk of further deceleration in Q1 from Q4's 27%. We are not expecting any change to the outlook to be given.”
UBS analysts said they lifted their price target for the company, despite keeping their rating unchanged, as a result of shifting the scope of their valuation from 2024 to 2025.