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Goldman downgrades Sage as risk/reward more balanced

Fri 30 November 2018 08:40 | A A A

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(Sharecast News) - Sage was under pressure on Friday as Goldman Sachs downgraded its stance on the software company to 'neutral' from 'buy' and cut the price target to 670p from 780p, arguing that the risk/reward is now more balanced following estimate resets and a more realistic revised outlook.

GS said that while Sage's revised FY19 outlook has resulted in a significant estimates reset, it is more realistic in light of the strategic challenges faced by the company in the near term as it transitions to cloud.

"The revised outlook seeks to address Sage's shortcomings in terms of technology and R&D, as well as recognises the need to shift to a subscription model. Having said that, we believe this process will take time and given the stock's positive reaction post revised outlook, we see a more balanced risk reward at current levels and downgrade Sage," it said.

Goldman noted that since being added to the 'buy' list in June, the stock is down 2.5% versus the FTSE World Europe index up around 20%, mostly due to uncertainty around the top line and margin delivery demonstrated in the recent past.

"In our view, further outperformance is contingent upon consistent revenue and margin delivery and a more successful transition to a subscription model," GS said.

At 1000 GMT, the shares were down 2.7% to 589.60p.

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