Analysts at Canaccord Genuity lowered their target price on software group Sage from 790.0p to 700.0p on Monday despite the group’s full-year results coming in ahead of expectations.
Canaccord highlighted that Sage’s full-year sales were £1.90bn, ahead of consensus estimates of £1.88bn, while underlying earnings and earnings per share also beat estimates at £411m and 27.4p, respectively.
In addition to the strong showing, Canaccord also noted that Sage’s guidance called for 3-5% organic recurring growth, bang in line with current consensus of 4.0%.
“This equates to total group revenue growth guidance of c. 2-4% (there is only a very small element that is not recurring). FY21 operating margin guidance is for “over 19.0%” vs current consensus of 22.0%. This implies underlying operating profit at a minimum could be around £350m if 19% is assumed,” said the analysts.
However, the Canadian bank said margin guidance was “disappointing” at “over 19%” as a result of extra investment in research and development and sales and marketing.
“We understand a 19% margin ‘minimum’ would apply if revenue growth was at (or exceeded) the top end of the range; therefore, we estimate FY21 margin to be 20-21%,” added Canaccord, which also reiterated its ‘buy’ rating on the stock.
Royal Bank of Canada upgraded SSE to ‘outperform’ as the bank took a more positive view of the group’s green energy targets and the regulatory outlook.
RBC analysts said they were more convinced than previously about SSE’s ambition to triple renewable energy output by 2030 and achieve an annual run rate of 1GW of new assets in the second half of the 2020s.
The analysts said SSE offers steady growth from the energy transition in networks and that Ofgem, the sector regulator, appears to be softening its stance on prices and total expenditure before a decision in December.
RBC, which increased its price target on the stock to 1,625p from 1,400p, also said much of SSE’s balance sheet risk had dissipated following progress on its £2.0bn disposals plan.
Analysts at JP Morgan sounded a particularly positive note on the outlook for Barclays and NatWest Group after Bloomberg reported at the weekend that the Prudential Regulatory Authority would consider easing their resistance to dividend payouts from UK lenders on a case-by-case basis.
That was good news for UK lenders, JP Morgan said, given their currently high common equity Tier one capital ratios and low valuations.
JP Morgan attributed the latter to the “elevated” economic uncertainty and the “unhelpful” blanket restriction on dividend payments.
“We view the UK banks as well capitalised, with the median capital buffer over the regulatory requirement (MDA) at 3.8%, after taking into account the forecast losses from the current recession as well as no IFRS 9 transition benefit,” said the analysts.
JPM pointed out that at 7.3%, NatWest had the highest CT1 buffer over the Maximum Distributable Amount. However, even though a high capital buffer was helpful for the decision to restart dividends, excess capital as a percentage of market capitalisation was also high at Barclays (19%) and NatWest (17%).
The analysts also felt a case-by-case approach on dividends would be more positive for NatWest due to high buffers and high excess capital and stated they continued to prefer both it and Barclays over rivals.
