UBS has cut its target price for accountancy software group Sage from 305p to 300p and kept its 'neutral' rating for the stock, saying that the second half was 'solid' but upgrades to forecasts are unlikely.

Full-year results announced on Wednesday were broadly in line with expectations at the operating level, the broker said.

Organic growth accelerated from 2% to 3% in the second half, helped by a strong performance in North America (growth quickening to 3% from 1% in the first half). However, European organic growth was unchanged from the first half at 1% with France (-1%) and Spain (-7%) providing a drag.

UBS said: "We believe management's FY13 targets are in line with current consensus estimates and see little likelihood of upgrades."

As for the balance sheet, Sage's target to a net debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) multiple of one implies £380-400m of debt at the end of the first half the current year, according to UBS.

However, the broker estimates that the current buy-back with updated assumptions for the rate of purchases implies a £165m shortfall. "We believe capital returns or M&A are both possible during H113 to bridge this gap".

UBS has decided to stay cautious about Sage with a 'neutral' stance, saying that 'cloud' progress is still at an early stage and competition is fierce.

The shares are trading at 13.4 times estimated current-year earnings.

Sage was trading down 3.36% at 290.3p in mid-morning trade on Thursday.

BC

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