Shares in The Sage Group (LON:SGE) are underperforming the broader UK market, as Deutsche Bank turned bearish on the blue-chip software specialist. Sharecast quoted the broker as pointing to a slowdown in recurring revenue growth.
As of 14:42 BST, Sage’s share price had given up 0.16 percent to 754.00p, underperforming the broader London market, with the benchmark FTSE 100 index currently standing 1.13 percent higher at 7,341.99 points. The group’s shares have added more than 10 percent to their value over the past year, as compared with about a five-percent dip in the Footsie.
Deutsche Bank trims Sage’s rating
Deutsche Bank lowered its stance on The Sage Group from ‘hold’ to ‘sell’ today, while lifting its target on the company’s share price from 505p to 650p.
“Sage has made good progress in transitioning to a subscription revenue model. However, we foresee recurring revenue growth slowing from here as some of the initial boost factors from a subscription transition fade,” the analysts pointed out, as quoted by Sharecast, adding that the company was now entering a new phase, where the quick wins from low-hanging fruit were fading and the company needed to focus on organic product development to sustain growth in the future.
The broker reckons that this would “unavoidably result in a sustained rise in Sage’s historically low level of research & development investment and operating margin pressure”.
The Sage Group updated investors on its interim performance last month, posting a 6.2-percent rise in organic total revenue and flagging recurring revenue growth in the remainder of its financial year.
Other analysts on software specialist
The 14 analysts offering 12-month targets for the Sage share price for the Financial Times have a median target of 660.00p, with a high estimate of 825.00 and a low estimate of 505.00p. As of May 31, the consensus forecast amongst 16 polled investment analysts covering the blue-chip group advises investors to hold their position in the company.