Canaccord Genuity upgrades Sage to 'buy'

Canaccord Genuity said slowdown fears may be overdone. As economies in Sage's key markets of the US, UK and Europe begin to slow, Canaccord believes the potential impact of this on the group's SME customer base and future growth expectations had become "an understandable" investor concern.

"We are unsure of the severity and duration of the coming slowdown, but assuming a sharp recession is avoided then we see several factors shielding FY23 consensus," said the analysts, who also raised their target price on the stock from 760.0p to 875.0p.

The Canadian bank highlighted Sage's ability to grow recurring revenues by a low-to-mid single-digit percentage during 2008-09 and 2020, its recent addition of new features and modules for medium-sized enterprises, a benefit to UK demand stemming from the Making Tax Digital legislation, and a strong US dollar.

"Our new target is based on a blend of 25.5x cal. 2023E P/E, a 10% premium to the historic average, and a 2.4x PEG ratio in line with listed peers. We believe this is warranted due to its high recurring revenue share, expected margin expansion & accelerating EPS growth," said Canaccord.

Reporting by Iain Gilbert at Sharecast.com