Sage Group hit by profit taking despite 8% organic growth

2nd Dec 2015 07:27

(ShareCast News) - Software company Sage Group said strong growth in recurring revenue helped to drive an 8% rise in organic group full year operating profits to £380m.However, statutory figures reflected the impact of currency fluctuations in Sage's key markets of Europe, the US and Brazil, with operating profits down to £297m from £300.Revenue on an organic basis rose 6% to £1.4bn, with recurring revenue up 9% to £953m.Pre-tax profits were down slightly to £275.8m from £278.7m."We entered 20116 with momentum and expect to deliver organic revenue growth of at least 6% whilst continuing the acceleration of sustainable and recurring revenue," the company said."With the revised revenue definitions applied for 2015, we are targeting an organic operating margin for 2016 of at least 27% and expect to reinvest throughout 2016 with an investment bias towards the first half of 2016."Broker Numis said its initial take was that the Sage's underlying performance was possibly a touch ahead of expectations, albeit currency headwinds held overall numbers in-line, "slightly muddied" by an accounting policy change which has caused some confusion.Analysts explained that on the 'old' accounting basis, underlying revenue was up 6.7% versus 6% guidance, with margins 28.2% versus 28% guidance, while the accounting change of reporting around £50m revenue and matching cost gross rather than net, is negative for reported margin but not EBITA."As a result, the 6% growth, 27% margin guidance on a 'new' basis in the outlook corresponds to the former 6% growth, 28% margin on the "old" basis.""Importantly to us, 8.5% recurring revenue growth suggests circa 9% in Q4 thus on track for the 10% target."Shares in Sage, which hit an all-time high earlier in the week after putting on almost 20% over the past two months, were hit by profit-taking and down 3.9% to 554p by 1020 GMT.Analyst Mike van Dulken at Accendo Markets said what looked like a decent outlook statement after a good start of the new financial year was not helping sentiment, nor the fact that Sage hit three-year financial targets while restructuring continues. "Having been sideways since May, investors are hitting escape, concerned that further correction may be on the cards."