Sage shares sink as French business and training costs drag on revenues
The company said its French division continues to significantly underperform relative to the rest of the group.
Shares in business software firm Sage sank more than 5% as investors worried over weaker than expected first quarter sales weighed down by training costs and its underperforming French business.
The company reported a 6.3% rise in organic revenue for the three months to December 3, amid strong performance from its North American business which was more readily adopting cloud software.
Across the group as a whole, Sage said software subscriptions grew 26%, while organic software and services revenues rose 4% thanks to strong performance in training and services as well as in its Enterprise Management division, helping to offset a decline in other licences.
Its figures were also held back by its French division, which the company said “continues to significantly underperform relative to the rest of the group, weighing on both organic revenue and recurring revenue growth”.
However, the company expects a recovery in the second half of the year.
Sage shares were at the bottom of the FTSE 100 in morning trading, down around 5.2% or 42.6p at 778.8p.
Jasper Lawler, head of research at London Capital Group, said: “Software giant Sage reported another strong quarterly rise in sales, but the shares fell since the figures came in slightly below expectations.
“An increase in sales training costs seems to have distracted from the business of selling software. Investors aren’t convinced by Sage which has kept FY 2018 guidance despite the blip.
“Sage may be reaching the twilight of investor optimism about its conversion to a cloud-software business.”
The company also noted currency headwinds as a result of the stronger pound, which resulted in a weaker translation of US dollar and euro-denominated income.
Chief financial office Steve Hare said first quarter results were in line with the company’s expectations.
“As we outlined at the time of the full-year results, we have invested heavily in sales training in Q1 to set up the business for success, particularly in Sage Business Cloud, resulting in the delay of some revenue into Q2.
“Quarterly phasing of organic revenue growth is therefore expected to be similar to prior financial years.
“We expect acceleration throughout the year including a stronger Q2 and we reiterate our full year guidance of around 8% organic revenue growth and around 27.5% organic operating margin for FY18.”
Mr Hare said the company would detail plans for how it would “accelerate” revenue growth at its capital markets day on Thursday.