Barclays Capital has upgraded accountancy software giant The Sage Group PLC (LON:SGE) on valuation grounds, after a year of stagnation for the share price.
Organic growth has decreased in the two years since Sage's transition plan was launched, as progress in global products has so far been insufficient to offset a slowdown in the core business, the bank noted.
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Barclays reckons the old school on-premise (licence per seat) business will remain under pressure and speculates that this could be the reason Sage got shot of its US payments business, which was slowing down the growth rate, and acquired fast-growing cloud businesses Intacct and Fairsail.
“However, with this the pro-forma growth rate has increased from 6% to 8% and we expect management to use this to herald the next phase of Sage's transformation and begin to guide to a double-digit growth target and mid-term leverage,” BarCap’s team said.
The team still has some reservations about the leviathan’s ability to make the transition to a cloud-based model, the share price standstill over the last 52 weeks means Sage is now at a reasonable valuation, while signs of acceleration in organic growth could revive market expectations.
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Barclays now has Sage as “equal weight” and a new price target of 685p, up from 540p previously.
Shares in Sage rose 1.6% to 712.5p this morning.