Sage Group PLC (LON:SGE) has been upgraded to ‘neutral’ from ‘sell’ by analysts at UBS, who said that while risks for the software group remained the near-term picture “looks better” and that valuation was now “reasonable” following a trading update last week.
In a note on Monday, the Swiss bank also upped its price target on the firm to 630p from 550p, saying the company’s picture was “more balanced now” after Sage reiterated its guidance following growth in recurring revenues for its first quarter.
READ: Sage surges as recurring revenue continues to expand
“Expectations have been lowered sufficiently and the prioritisation of annualised recurring revenue (ARR) growth by [management] is in tune with investors' priorities…Our medium-term structural concerns around competitive pressures remain, as does the potential headwind to earnings from further disposals of non-core assets, but the picture is more balanced now, in our view”, UBS said.
Looking ahead, analysts said they expected Sage’s focus on recurring revenues to persist, adding that the fact the company’s mid-market solutions are “more likely to be sold by partners on commission, rather than on a revenue-share basis as with SME solutions”, may support growth.
“[The first quarter’s] solid results and the continuing impressive performance of the cloud native portfolio reduce the risks to the shares we believe. Valuation is more reasonable now and while we see competitive pressure as still a concern, plus the potential for further disposals to be a headwind to earnings, we believe an upgrade to Neutral is warranted”, UBS said.
Sage shares rose 1.7% to 617.4p in late-morning trading.