Despite a strong performance for the wider market and in-line guidance from enterprise software provider Sage (SGE) its shares dropped 3.1% to 738.6p on a first quarter update.

The fall, which came after a steady start to trading early on Wednesday, reflected some disappointing underlying metrics.

Overall, revenue for the three months to 31 December 2021 increased to £458 million, up from £435 million year-on-year.

But as Shore Capital analyst Martin O’Sullivan observed, this year-on-year revenue growth of 5% was short of the full-year consensus forecast of 6.6% and recurring revenue growth was at the low end of the full year guidance range of 8% to 9%.

In an era of cloud computing Sage is attempting to move away from licence sales and professional services revenue, and to increase its focus on subscription revenue.

‘REASSURING TRADING UPDATE’

‘Sage has made a strong start to the year, accelerating growth in line with expectations,' chief financial officer Jonathan Howell said.

‘Sage Business Cloud has performed particularly well, driven by continued growth in both cloud native and cloud connected solutions, as we execute on our strategy to be the trusted network for small and mid-sized businesses.’

O’Sullivan said: ‘Overall a reassuring trading update, in our view, albeit not one that is likely to materially boost investor sentiment in the current environment.

‘We do expect a more confident narrative to emerge from Sage over the medium term and the stock has defensive characteristics amid the market volatility for tech stocks generally.

‘Whilst so, we think the prevailing market value represents a reasonably fair trade off between this and the probable lack of earnings upgrades in the next 12 months, noting that today’s trading update is neutral in terms of the full year outlook.’

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Issue Date: 26 Jan 2022