Canaccord raises target price on Sage following H1 results

Analysts at Canaccord Genuity raised their target price on software and services firm Sage from 680.0p to 700.0p on Monday after the group's first half trading results were broadly in line with expectations.

Canaccord said Sage's interim revenues were "slightly ahead" of expectations, with organic growth of 1.4% versus consensus estimates of 1.2% and operating profits of £180.0m, just shy of the £184.0m predicted by analysts.

The Canadian bank noted that guidance for the 2021 full-year was officially raised to the "upper end of 3-5%", compared to consensus estimates that were already at 4.7%, while it pointed out that Sage made no change to operating margin guidance, which was already over 19.0%.

"We are some 4% ahead of consensus at the operating profit level for FY21 and increase this by 1% today on slightly better margins," said Canaccord.

Canaccord also highlighted that it continues to believe that recurring revenues will be around 6.5% in 2021, above the upper end of guidance, with a benign second-half comparator to come.

"The annual recurring revenue (ARR) growth decline has flattened (i.e. first derivative now turning positive) and should now inflect from Q3 onwards," said the analysts.

"Management's commentary during the conference call was more optimistic than the prior four quarters, highlighting that customer base resilience and new customer acquisitions are running at pre-Covid levels," added Canaccord, which reiterated its 'buy' rating on the stock.