Canaccord Genuity upgrades Sage to 'buy'

(Sharecast News) - Analysts at Canaccord Genuity lifted enterprise software firm Sage from 'hold' to 'buy' on Monday, arguing that a recent sell-off has created an attractive entry point for investors.

Canaccord Genuity said sentiment had swung heavily in favour of perceived GenAI winners such as semiconductor names, leaving largecap enterprise software stocks out of favour, but it believes Sage to be relatively well insulated from the threat of AInative competitors encroaching on its customer base.

Canaccord said the shares' recent underperformance looked overdone, noting that despite a solid firstquarter update showing 10% organic sales and annual recurring revenue growth, the stock was down 12% yeartodate and has lagged the FTSE 100 by 45% over the past year, even as earnings forecasts edged higher and buybacks continued.

The Canadian bank argued that the current valuation was overly pessimistic for a business delivering consistent free cash flow and earnings per share compounding, with 97% recurring revenue. It also said Sage's reverse discounted cashflow suggests that the market was pricing in just 1.5% nominal longterm growth from 2030 onwards, while the shares trade on 17x CY26 earnings - the same level seen during the Covidera market lows.

Canaccord added that Sage should continue to compound earnings, even if growth slows to midsingle digits, given a 6% free cash flow yield, a modelled 2.4% dividend yield and the potential for buybacks to add 3-4% EPS growth per year. Combined with operating leverage, the broker sees scope for high singledigit EPS growth.

After adjusting forecasts for a weaker US dollar, Canaccord genuity also set a new price target of 1,135p, up from 1,100p and implying around 20% upside.

Reporting by Iain Gilbert at Sharecast.com