Shares in Sage Group PLC (LSE:SGE) have been upgraded by UBS to 'neutral' from 'sell', reflecting a more balanced outlook for the UK-based accounting and payroll software company.
The Swiss bank noted that while Sage has experienced growth due to price increases in recent years, this is expected to slow as inflation moderates.
It highlighted that Sage's efforts to embed artificial intelligence (AI) into its software could be a key growth driver in the future.
The integration of AI, particularly with Sage’s "copilot" tool that assists users with automation and insights, may allow Sage to charge higher prices and improve efficiencies. However, the bank cautioned that the benefits from AI may take time to materialise.
Despite competition from companies like Intuit and Xero, Sage is expected to grow at an organic rate of around 9% in the next two years, according to UBS.
The company’s AI initiatives and a shift to cloud services are positive, but the outlook remains cautious due to stiff competition and pricing pressures, it added.
UBS maintained a price target of 1,050p, indicating limited upside potential from the current share price of 985p. The investment bank concludes that while Sage remains a solid performer, its medium-term growth prospects are more in line with market expectations than previously believed.
In afternoon trading, the stock was flat at 983.8p.