Sage cheers City with profits news

Accountancy software group Sage today brushed aside fears that customers were reducing budgets for new technology by signalling a 16% hike in half-year profits.

Sage – the last surviving Footsie technology stock – surprised investors by revealing that pre-tax profits for the six months to March 31 would be in the region of £101m (€148m).

The news pushed shares in the Newcastle-based company up 3% as analysts noted the performance was better than the £98m (€144m) consensus in the City.

Revenues rose by 17% to £381m (€559m) after stripping out the impact of currency swings, with analysts believing nearly half this increase was achieved without accounting for acquisitions. No details on how the improvements in turnover and profits were achieved were offered by the company in its update today.

Sage, which employs around 8,000 people worldwide including 1,850 staff in the UK, sells software and other services to small and medium-sized enterprises (SMEs).

It has been acquiring companies such as Timberline, which sells software to the US construction and property sectors, as part of a strategy to hike turnover at a time when many clients are cutting back their budgets for new software and upgrades.

Adam Shepherd, of Dresdner Kleinwort Wasserstein, said Sage had again demonstrated its ability to cut costs and its business looked to be improving steadily in all regions.

He said: “It is clear that growth in the SME accounting market is correlated with underlying economic conditions and Sage has clearly executed well in what appears to be a still challenging demand environment.”

Matthew Hammond, of Credit Suisse First Boston, said the view in the City remained that Sage would suffer a “material slowdown” and growth from its existing businesses would only be between 4% and 5% for the whole year.

Among the issues clouding the outlook for Sage was competition from Microsoft’s accounting product for SMEs which is due for release in the second half of 2005, experts said.

Investec analyst Gareth Evans also flagged worries that Sage’s ability to outperform was being curtailed as it contemplated smaller and more risky deals.