Goldman Sachs ups target price for Sage

11th May 2015 14:24

Analysts at Goldman Sachs bumped up their estimates for the Sage following the company's latest interims.The payroll and accounts software designer reported an acceleration in interim revenues versus 5% growth seen in the prior year period.Unchanged guidance for organic growth of 6% in fiscal year 2015 is conservative, Mohammed Moawalla and Gautam Pillai wrote in a research note dated 8 May, as it implied sales would not accelerate at all in the second half.North America saw some weakness in payments and SMB but that came alongside signs of macro improvement in Europe, driven by the UK and France."We remain neutral-rated on Sage as we balance structural transition risks and a premium valuation versus its history against a defensive business model (73% recurring revenues in the first half of 2015), on-going capital returns, and scope for further operational value creation," Moawalla and Pillai explained.The company's Capital Markets Day on 24 June will be a key catalyst for the stock. Management is expected to take that opportunity to discuss the medium-term strategy for growth, investments and the use of cash, the broker said.Goldman Sachs upped its target on Sage to 565p from 540p.The valuation was the result of assigning an 85% weighting to their p/e-based valuation of 553 plus a 15% weighting for M&A potential - on the basis of 4.5 times calendar year 2016 estimated sales, which yielded a target of 630p.