Deutsche Bank initiates coverage of Sage at 'buy'

DB said Sage's revenue growth has accelerated as it migrates its large installed base from a traditional licensing model to subscriptions, reducing churn and increasing average customer run rate.

“We think this acceleration can continue and are satisfied that the risk of defection to competitors is mitigated by Sage's strong brand, service and local market expertise.”

In addition, it said piggy-backing Cloud platforms offers a chance to capture additional growth in the low end.

Deutsche pointed out that although the company’s core remains in on premise, desktop software, it is building its cloud portfolio with Sage One and Sage Live and has released subscription-based, “cloudified” versions of its flagship products.

The bank reckoned this could drive an average revenue per customer increase within its traditional customer base, with relatively low risk of churn to competitors like Xero and Intuit.

Sage One should also allow the company to gain share in the currently barely-addressed 0-10 employee small business segment.

“We see encouraging signs that Sage’s old complacency has been replaced by a will to succeed in its changing landscape,” DB said.

At 1030 BST, Sage shares were up 2.5% to 662.88p.