Sage surges as recurring revenue continues to expand

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Sage Group PLC (LON:SGE) shares jumped on Thursday as the software firm reiterated its guidance following growth in recurring revenues in its first quarter.

In a trading update for the three months to December 31, 2020, the FTSE 100 company reported that recurring revenues had risen by 4.7% to £408mln, offsetting a 24% decline in other revenues to £39mln. This in turn boosted total organic revenues by 1.4% in the period to £447mln.

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Sage said it had performed “in line with expectations” in the quarter, with its recurring revenue growth supported by an 11.3% rise in subscriptions to £303mln.

Meanwhile, the company said it is “progressively increasing investment” in its product development and sales & marketing arms in the 2021 financial year, in line with its plans to drive further recurring revenue growth, adding that it may flex the level of investment over the year in response to tradition conditions.

Sage added that the 24% decline in other revenues is “in line” with its strategy to transition away from licence sales and professional services revenue and increase its focus on subscription revenue.

The firm also said its available cash and liquidity at the end of 2020 was £1.2bn, while net had fallen to £129mln from £151mln at the end of September.

“We have continued to deliver against our strategy in the first quarter, growing recurring revenue in line with our plan for the year, supported by good demand for Sage Business Cloud solutions”, chief financial officer Jonathan Howell said in a statement.

“Accordingly, we reiterate our guidance for the full year, as set out in our FY20 results announcement.  While the pandemic increases uncertainty in the near term, we continue to expect that our investment in Sage Business Cloud will drive the growth and long-term success of Sage”, he added.

Sage shares climbed 6% to 607.6p in early trading.

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