Broker tips: Sage, Breedon

Analyst at Canaccord Genuity downgraded software and services firm Sage from 'hold' to 'sell' on Friday, stating the recent share price reaction to its "in-line" set of full-year results and guidance had presented a "compelling" opportunity to take profit.

Canaccord Genuity believes the "hyperbolic" share price reaction to an essentially in-line set of results for 2023 and FY24 guidance that came in as expected had presented investors with a chance to take some gains.

Canaccord pointed out back in the summer that Sage had been one of the best-performing UK Technology stocks year-to-date, principally due to organic recurring revenue growth accelerating to low-teens percentage point which, in combination with margin expansion, drove an approximately 13% upgrade to consensus earnings per share.

However, Canaccord said from here the risk of organic recurring revenue growth muting to high-single-digits was rising, in its view, which in turn could drive a de-rating of the shares.

The Canadian bank also highlighted that while secular drivers remain, Intacct was playing in a "competitive space" and there was a growing macro risk in the US from the "higher for longer" interest rate environment.

"Overall, we view a slowdown in recurring revenue growth from low-teens to high-single-digit % over the next 12 months as a tangible risk. This seems at odds with the recent re-rating of the shares and now full valuation on our raised forecasts," concluded the analysts, who kept their 970.0p target price on the stock unchanged.

Analysts at Berenberg slightly raised their target price on construction firm Breedon from 430.0p to 440.0p on Friday following the group's year-to-date trading update a day earlier.

Berenberg noted that Breedon's revenue was up 8% year-to-date, including 5% like-for-like, while revenue for the four months ended 31 October was up 4% year-on-year, or 1% on a like-for-like basis.

The German bank stated that volumes in the industry had been "tough" thus far in 2023, but said Breedon has been "getting on with business" and had benefitted from "strong" operating efficiency and pricing. It added that Breedon trades at a 10.0x 2024E price-to-earnings ratio and 8.5x underlying earnings.

"Given this backdrop, management guided 2023 ahead of prevailing market expectations, and as such we raise our numbers by 2-4% over the forecast period, today," said Berenberg, which reiterated its 'buy' rating on the stock.

Berenberg added that Breedon was "very well positioned" in the UK and Irish markets, in its view, given its asset backing, level of vertical integration, and exposure to "more robust" end markets.