(Adds CEO comments, analyst reaction, shares)
LONDON, May 14 (Reuters) - British software company Sage reported a better than expected 4.4% rise in organic recurring revenue in the six months to end-March and said it now expected growth for the year to be towards the top end of its 3% to 5% range.
The company, which provides software to small and medium sized businesses, is increasing investment in subscription products based in the cloud, squeezing margins in the current year by 3 percentage points.
Chief Executive Steve Hare said recurring revenue for Sage Business Cloud increased 18% year-on-year.
“The second quarter was our fastest quarter of sequential ARR (annualized recurring revenue) growth since 2019,” he said in an interview.
“So I think we can see the kind of optimism and confidence coming through from our customers, and also their desire to really now invest in technology.”
Shares in Sage, which have risen 1% in the last 12 months, were trading 3% higher in early deals, topping the FTSE 100 index.
The results and the confident tone from management prompted JP Morgan-Cazenove to upgrade its recommendation to “neutral” from “underweight”.
“We believe the margin has been de-risked and revenue growth is likely to accelerate from here as COVID impacts diminish throughout the year,” they said.
Sage said its organic recurring revenue increased to 811 million pounds ($1.14 billion), offset by a 21% decrease in other revenue.
Its organic margin decreased to 20.2% from 23.2% in the same period a year ago, resulting in organic operating profit declining 12% to 180 million pounds.
$1 = 0.7121 pounds Reporting by Paul Sandle; editing by Costas Pitas and Jane Merriman