Market Report: Sage gets a stuffing from broker's negative note

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Bearish comments from SG Securities weighed heavily on sentiment towards Sage yesterday and left shares in the software provider among the worst performers in the FTSE 100.

The French-owned broker did not pull any punches. It urged investors to sell Sage stock ahead of tomorrow's full year results. SG believes that the group is up against increasing competition, especially in the US from the likes of Microsoft, and warned that this could take a heavy toll on its profit margins.

SG fears that Sage, 6p lower at 240.25p, will have to spend more on marketing and research and development in the future in order to combat the competitive threat. A scarcity of suitable acquisitions is another problem facing the software group, according to the broker. Sage needs large acquisitions in order to sustain its current growth levels, but it is up against an increasing interest in the sector from private equity firms which makes finding suitable targets more and more difficult.

As it stands, the City expects tomorrow's annual results from Sage to reveal a jump in pre-tax profits to around £220m from £194m last time around.

The FTSE 100 index slumped 72 points to 6,050.1 as stocks on Wall Street fell sharply in early trading. Dealers blamed the losses registered by both the Dow Jones Industrial Average and the tech-laden Nasdaq on worries about the weakness of the US dollar.

Drax dropped 27p to 822.5p after ABN Amro slapped a "sell" rating on the power generator. It warned that lower oil prices have the potential to dent its profits. Elsewhere, BAE Systems lost 12.5p to 391p on fears the government of Saudi Arabia may hand a £75bn contract to build fighter jets to French rival Dassault Aviation. Other heavy fallers in the blue chip index were Lonmin, down 92p to 2,970p, Cable & Wireless, off 4.75p to 155.25p and Hanson, 21.5p weaker at 719.5p.

Talk that the Spanish utility Iberdrola had secured the financing to bid for ScottishPower was not enough to help the UK group buck the negative trend in the market. Iberdrola is said to have lined up ABN Amro, Barclays and Royal Bank of Scotland to provide it with the money it needs to acquire Scottish Power, 1.5p lower at 746p, and create Europe's third biggest power supplier. The Spanish group is expected to table an offer of around 800p a share before the end of the week.

Likewise, London Stock Exchange lost 10p to 1,311p despite news that Nasdaq has the financing in place for its LSE bid.

Only six FTSE 100 stocks gained ground yesterday. ITV rose 1.25p to 112.5p, Kazakhmys added 8p to 1,152p, Enterprise Inns ticked 7p better to 1,207p, BskyB put on 2.5p to 525p, Persimmon improved 6p to 1,387p and WPP firmed 1p to 669.5p.

Intec Telecom Systems, 0.25p higher at 34p, denied reports that it is in takeover talks and said it was firmly focused on improving the financial performance of the business. EasyJet jumped 10p to 577p on the back of an upgrade from Deutsche Bank. The German broker raised its recommendation on the no-frills carrier to "buy" from "hold" and said that City analysts may soon have to raise their earnings forecasts for the group once again. Meanwhile, Deutsche urged investors to abandon Ryanair, €0.22 lower at €9.46, arguing that cost control remains an issue at the airline.

WH Smith fell 4.5p to 362.5p, Woolworths lost 0.25p to 36.75p, Debenhams dropped 2p to 194p and Next slumped 36p to 1,794p as Richard Ratner, analyst at broker Seymour Pierce, warned that that retail sector could be heading for its worst Christmas in 25 years.

Lower down the pecking order, Z Group had a volatile session. Shares in the internet technology group crashed to 66p in early trading, but managed a modest rally after management issued a statement assuring the City they knew of no reason for the stock's weakness. Z Group closed at 75p, down 12.5p on the day.

Petra Diamonds ticked 1p higher to 135.5p on news that the group will soon be in a position to cut and polish a proportion of the diamonds it mines from its sites in South Africa. This should boost Petra's bottom line because the value of a polished stone can be as much as 50 per cent higher than a rough one.

Finally, investors can expect the float of Golden Prospect Precious Metals today. A spin-off from investment bank Ambrian Capital, it is the first pure precious metals fund to be listed in London and will have assets worth £13m.

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