Broker snap: Investec downgrades SDL on tech slowdown

15th Oct 2012 09:54

Investec has downgraded its rating for information management group SDL from 'buy' to 'hold' after Monday's trading update showed that the slowdown in technology revenue growth continued into the third quarter.The strong services performance seen in the first half has been maintained, which Investec said is "encouraging"; but technology sales continue to be suppressed. The broker believes this slowdown is "partly due to the macro backdrop and partly operational execution which also impacted H112 to some degree".With technology sales being high margin, Investec has reduced its 2012 and 2013 pre-tax profit forecasts by 4% and 5%, respectively.As such, the target price for the shares has been cut from 850p to 670p.The broker said: "We continue to see SDL as an appealing investment proposition due to its position of strength in multiple growth markets. However to justify a premium rating we believe the company will need to deliver on its growth potential within the technology business as well as the services business.""We believe this will likely come through during FY13E as operational execution improves and we will look to revisit our target price and recommendation on evidence of this delivery. For now we move to 'hold'."By 10:27, SDL's share price had dropped 14.82% to 545.15p.BC