Broker snap: Sage isn't cheap, Investec recommends to 'hold'

16th Jul 2012 11:25

Investec has trimmed its target price for accountancy software group Sage from 247p to 243p and retained its 'hold' rating as European weakness continue to hold back sales growth. Sales were flat in the third quarter, compared to 1% growth in the first half. "With UK and Ireland still solid (+5% and +7% in H112), this implies that mainland Europe has modestly worsened from the declines in H112. We estimate that mainland Europe (ie ex UK and Ireland) is c30% of group profits which is the main factor behind our forecast changes," Investec said.The broker is now forecasting flat second-quarter sales in Europe and combined with recent foreign exchange movement, the current-year earnings per share (EPS) estimate is reduced by 2% from 19.6p to 19.2p and next year's estimate is cut by 1.8% from 21.6p to 21.2p."Trading on c15x FY12E PE, the stock is not particularly cheap and post the recent bounce, we expect it to fall back," Investec said."We expect tomorrow's analyst day to be upbeat about the business model and long-term outlook, but realistic regarding the varying near term trading dynamics."By 11:20, shares were trading 3.19% lower at 275.9p.BC