Broker snap: Good medium-term growth expected for Sage

2nd Dec 2010 12:05

Sage's subscription revenue growth has led Nomura to expect solid execution next year from the blue chip accountancy software firm.Sage reported "robust subscription revenues growing at 3%" in the second half versus the broker's expectation of 1%. Nomura notes that a growth of around 4% is achievable in 2011.Analyst Gunnar Plagge says "on the software and software-related services side, we are modelling 7% growth next year with all geographies showing an improvement"."We are looking for margins across all main regions to remain broadly at the same level next year as Sage looks to invest in web-based software, X3 ERP worldwide expansion, healthcare offerings in the US, and roll out its UK-payments business across Europe," Plagge adds.In the medium term, the broker expects margins moving towards the late 20s, and sees a substantial improvement in earnings growth going into 2012.A target price of 295p is confirmed, along with a 'buy' rating.