Canaccord Genuity lowers Sage to 'hold'

Canaccord said it made the move on valuation grounds and kept its 710p target price unchanged, even though it nudged up its 2020 earnings per share estimates by 3%.

The Canadian broker acknowledged that Sage beat first-half revenue and adjusted operating profits expectations by 2% - although the analysts pointed out that the period had not been impacted by Covid-19.

"However, and somewhat reassuringly, management provided a fairly detailed April insight as to the health of Sage's sizeable SME client base, but sensibly cautioned that this is based on only one month of empirical evidence," said Canaccord.

On that, Sage said it had only seen a "slight" churn in small business customers in April and no discernible impact on medium-size customers.

Canaccord also highlighted that Sage's margin guidance was "unsurprisingly unspecific" at this stage, other than noting that innovation had to be balanced with the current situation and advising that variable cost controls had and would continue to be implemented to reach a "financially balanced margin for FY20".

"We can't really fault this approach and note that there are no intended redundancies or any furloughing of staff at this time."