Accounting software giant Sage Group PLC (LON:SGE) was the top riser on the FTSE 100 after it was on the end of an upgrade from UBS.
The Swiss bank said in a note this morning that it was a fan of Sage’s recent acquisition of Intacct, although it conceded that, at US$850mln, it wasn’t cheap.
READ: Sage’s US$850mln push into the cloud
“Price apart, we like the Intacct acquisition, and upgrade Sage to ‘neutral’ today,” wrote UBS analyst Michael Briest.
“It fills a key gap in Sage's cloud portfolio and if Sage is quick to internationalise it, it can put the group on the front-foot in addressing the shift to the cloud in the UK and elsewhere in Europe.
“With SageOne, Sage Live, Intacct and Sage People, we believe that Sage now has a credible set of cloud solutions, capable of addressing the needs of all but its very largest X3 customers.”
According to the analyst’s calculations, the acquisition of Intacct and Fairsail (Sage People) should add 170 basis points to group growth, although they could hamper margins by 240 basis points.
Briest still has an issue with Sage’s research and development spend, or lack of, and points to the fact that less than 10% of revenues are reinvested back into R&D.
“The margin targets it has set itself means we do not expect this to change and balance sheet led catch-ups (such as Intacct) may well recur.”
As well as the recommendation upgrade from ‘sell’, Briest also hiked his price target to 680p.
Shares surged past that this morning though; up 3.2% to 704.5p.