Numis Securities has pulled back its rating for software firm Sage Group PLC (LON:SGE) to ‘hold from ‘buy’ following Wednesday’s trading update from the FTSE 100 listed firm.
In a note to clients, Numis’ analysts noted that Sage stated that its first quarter performance was "in-line" with management expectations, with revenue growth of 6.3%.
READ: Sage Group disappoints with organic revenue growth
However, the analysts pointed out, that Wednesday’s -5% share price reaction suggests they were “not alone in expecting more.”
The analysts added: “Whilst management were keen to observe that there was a negative impact from one-off sales re-training, we also estimate a c. 100bp benefit to growth through the incorporation of the high-growth Intacct/ Fairsail revenue into the organic numbers, so adjusting for this, recurring revenue looks to have delivered its weakest performance for 5 years.”
They continued: “This raises the ongoing question of why we are seeing no overall top-line impact from what is now nearly three years of sales & marketing investment.”
The analysts said that Sage’s valuation does not feel overly demanding for 7%+ growth and is below their target multiple, but they think a “more consistent performance and guidance would improve investor confidence.”
They lowered their target price slightly for Sage to 855p which, combined with a recent run in the shares, leads to the downgrade in rating.
In late morning trading, Sage shares were down another 1% at 760p.