UBS downgrades Sage to 'sell'

"While Sage enjoys a defensive topline profile entering FY23 we believe ongoing margin pressures were masked last year by bad debt provision reversals and the benefit of a major restructuring round," UBS said.

It also said that the recently-concluded acquisitions of Lockstep and Brightpearl enhance the offering but bring losses which will see a full-year impact in FY23.

"As Sage moves to emphasise underlying metrics over organic its management incentive programme also shifts, potentially implying more M&A given a margin underpin on average rate of return growth likely beneath current levels (FY 22: 16%)," the bank said.

UBS noted that consensus expectations are for sales to grow at an 8% organic compound annual growth rate through FY25 with margins reaching 21.5%, a 70 basis points a year improvement.

"Even absent future M&A we see this as challenging and are at 20.5%; 110bp below consensus," it said.

At 1555 GMT, the shares were down 2.4% at 752.80p.