Growth in the first half of the year to 30 September 2018 ‘was lower than our expectations as the pace of execution has been slower than we planned,’ says chief executive officer (CEO) Stephen Kelly.
The company is blaming the weaker than anticipated growth in recurring revenue and software subscriptions on operational issues.
BEEN HERE BEFORE
This is a blow coming as it does after revealing a similarly slow start to the year in January when organic growth came in a 6.3%. That run-rate has stayed the same in the three months to March, forcing Sage to revise down full year organic growth guidance from 8% to 7%.
At least profitability will be less affected, with organic operating margin guidance of 27.5% left unchanged.
But this has left investors annoyed once again, marking the share price down by nearly 20% in early trading. By late-morning the shares have staged a bit of a recovery but they are still nearly 10% lower at 610p.
ON PROFIT WARNING ALERT
This will also raise the worry bar about even lowered full year growth hopes, increasing the threat of a profit warning.
‘Sage is in the unenviable position of relying on a stronger second half to meet guidance,’ says Russ Mould today, investment director at trading platform AJ Bell. ‘Often in this scenario a company fails to make up the shortfall, raising the spectre of another warning down the line.’
‘While in theory this means the company remains in control of its own destiny there is minimal detail on how these problems will be fixed, investors will be hoping for greater clarity when the company posts its first half results in May,’ says Mould.
LONG-TERM GROWTH QUESTIONS
It even raises doubts about Sage’s longer-run ambitions of 10% organic growth and 30% profit margins.
‘While this is a fairly small tweak in the short term [7% guidance from 8%], it does bring the company’s ambitions of becoming a double-digit organic growth business in the medium-term into question,’ argues Megabuyte analyst Lee Prout.