Broker snap: UBS downgrades Sage to 'neutral'

31st Jul 2012 09:54

UBS has downgraded its rating for accountancy software group Sage from 'buy' to 'neutral' on valuation grounds but has raised its target price from 295p to 305p to reflect the impact of recent buy-back activity.The broker notes that Sage's recent investor day set out plans to re-accelerate growth by focusing investments on a 'core' set of solutions, while moving away from 'non-core' businesses. It also wants to develop a range of low-end and mid-market cloud-based solutions."While we believe management has now set a coherent strategy in motion, the shift to the cloud (and its half-way house the 'subscription' pricing model) is in its earliest days, and has risks," the broker said.Meanwhile, UBS believes that "economic headwinds" on a sales-weighted basis are likely to represent a 100 basis-point headwind in 2012 year-on-year and upside to the 2% growth rate in the first half is likely to be only modest."We continue to see a capital return as a potential catalyst in the next six months, given a 1x leverage target for March '13, albeit possible disposals of 'non-core' units could create a counterweight to this."By 10:22, shares were down 2.07% at 292.7p.BC