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Sage share surge sets rumours running

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19th Sep 2007
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As the FTSE nose-dived in the wake of the Northern Rock crisis, Sage's share price led the index on Monday with a 2.7% gain that set off a flurry of takeover rumours. John Stokdyk reports.

It may have been more a sign of the City's fevered atmosphere than a solid bid, but someone was investing heavily in the last remaining UK technology company in the FTSE 100. One rumour suggested the Indian technology group Infosys was readying a bid, while Cap Gemini was another name said to be "doing the rounds".

A positive research note from Deutsche Bank may provide a more prosaic explanation for Sage's surge. The bank's analysts had ridden along with Sage chief financial officer Paul Harrison in a roadshow around eight institutional investors in Paris, where he emphasised the strength of Sage's recurring revenues (roughly 70% of sales) and the revenue growth that continued to flow from Sagecover-style support packages.

The Sage CFO also claimed the company was not experiencing tougher opposition and was adequately holding market share. AccountingWEB's historical data indicates that in the UK at least, Sage has maintained a phenomenally consistent share of the market - but its 2006 annual report showed that new licence growth had dropped to 5% last year.

The new breed of accountancy software as a service challengers are still at the embryonic stage, but collectively they made up nearly 8% of the accountancy software users who participated in our recent Business Software Satisfaction survey. If these suppliers continue to sustain their growth rates over the next couple of years, Sage's hold on the market will be a lot less secure.

If there's any acquiring to do, Sage is usually first in the queue, as it confirmed last week with the acquisition of French treasury software house XRT last week for £30 million.

From what Sage's CFO was saying in Paris, acquisition fever may be cooling in the IT industry. For the past couple of years, Sage has missed out on deals and seen prices of target companies inflated by interest from private equity houses such as IRIS backer Hg Capital. From the company's experience with XRT, the group saw signs that private equity was becoming less active, the Deutsche Bank analysts said.

Rating the share as a "buy", they commented: "Sage represents a safe haven in our view in the context of the sector and the valuation is undemanding." Somebody appears to have been listening.

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