Sage shares down 5% after trading update

Steve Hare

Shares of Newcastle-based software company Sage Group fell about 5% on Thursday after the firm delivered what some analysts considered a slightly disappointing trading update for the three months ended December 31, 2016.

Sage shares were down 5% at around 601p, giving the firm a current stock market value of more than £6.5 billion, according to Reuters data.

Sage said group organic revenue increased 5.1% for the first three months of the year.

But it added that organic software and software related services (SSRS) revenue declined by 10% “reflecting the continuing planned migration to subscription.”

Sage said “all major Sage countries are running to or exceeding plan, with the exception of USA where the payments business showed a slight decline in revenue, and France where SSRS revenue decline was more marked.”

Growth for the quarter excluding its US payments business, where it is “evaluating strategic options including a potential sale” was 5.9%.

Sage said organic recurring revenue grew by 9.6%, driven by software subscription growth of 31%, and the number of software subscription contracts now stands at 1.1 million.

Sage chief financial officer Steve Hare said: “Q1 results are broadly in line with our expectations.

“We indicated at the time of the full year results that the early part of FY17 would start more slowly, with growth accelerating through the year and into FY18.

“Management is clear that FY17 is all about delivery.

“The strategy is working: our customer for life engine continues to drive high quality revenue growth and we are starting to see encouraging signs of new customer acquisition as we continue to invest in the business.

“For the year as a whole we remain confident that we will achieve the guidance of at least 6% organic revenue growth and at least 27% organic operating margin.” 

Analysts at Investec wrote in a note: “The Q1 update is slightly disappointing on organic revenue growth, with problem areas in US payments and in France cyclical revenue.” 

Sage said net debt at December 31, 2016 was £380 million, down from £397 million at September 30, 2016.