Sage reiterates FY guidance as first quarter revenue up 76%
By Frank Prenesti
Date: Thursday 17 Jan 2019
(Sharecast News) - Technology group Sage reiterated full year guidance as it said first quarter organic revenue increased by 7.6% to £465m.
Recurring revenue increased by 10.5% to £387m, underpinned by software subscription growth of 27.7% to £237m, building on the momentum generated at the end of the 2018 full year as the business continues to focus on subscription, assisted by a softer comparator in the first quarter last year.
Software and software related services revenue fell 5.8% to £65m reflecting managed decline in licences as the business transitions to subscription, offset by a slight increase in services, Sage said.
Regionally, North America delivered revenue growth of 10.4% to £154m, with double digit recurring revenue driven by cloud connected solutions and Sage Intacct.
UK and Ireland showed "strong signs of recovery" with revenue growth of 5.9% to £96m and double digit recurring revenue growth driven by Sage 50 cloud connected migrations," the company said.
"In France, revenue growth of 5.8% to £69m reflects continuing recovery in recurring revenue, driven by Sage 200 cloud connected. Performance in other regions was largely in line with expectations," it added.
A weaker sterling against the US dollar and euro had led to exchange rate tailwinds, the company said.
Sage reiterated its full year guidance for organic recurring revenue growth of 8-9%, flat to down mid single digits organic revenue growth for SSRS and processing, and an underlying operating margin of 23% to 25%.
Sages shares, which fell to a three-year low in October,
City analysts are on average expecting organic revenue growth of 5.7% for the first half and year as a whole.
Goldman Sachs said it was encouraged by the update, with organic growth broad based across geographies with continued strength in North America and continued recovery in France and UK.
"We believe the quality of growth was good with an organic recurring revenue growth of 10.5% in 1Q, driven by subscription growth at 27.7%, a modest acceleration vs prior quarters, suggesting the cloud transition is on track."
Given the unchanged full year guidance of 5-7% organic growth, the first quarter "slightly lowers the bar" for the remainder of the year, although comparative figures from last year will get tougher to beat in the second half of the year.
Morgan Stanley said the update reflected an unexpectedly strong start, noting that recurring revenues were up 10.5% organically, a significant acceleration over the mid-6% fourth-quarter run-rate, while software and software related services declined 5.8%.
"While sell-side expectations reduced sharply following FY18 results (from 6.9% growth for FY19 to 5.7%), we think buy side expectations will have been higher given clear share price outperformance over the last two months and a [near term] P/E re-rating back towards one standard deviation above its long term average."
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