The Investment Column: Sage would be wise not to rest on its laurels

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Sage

Our view: Cautious hold

Share price: 192.4p (-6.1p)

There was no misunderstanding the Sage's trading update released yesterday, with the company issuing a terse one-liner about expecting to meet the market's expectations.

Sage makes software, largely for small and medium-sized businesses. It has a history of successful acquisitions that have helped it to remain robust during previous economic downturns. Several watchers believe that Sage is a safe bet this time around, but others say that recent takeovers have not worked, pointing to the buyout of the US healthcare software company Emdeon in 2006. "This was not sticking to the company's knitting," reckon watchers at Seymour Pierce, which recommends a sell, saying that Sage has "bitten off more than it can chew" by buying and trying to integrate the company.

Further deterioration in the economy will be detrimental – fewer start-ups will be born, requiring fewer software packages; those with existing systems may be less inclined to update to better products. Although the company has ridden previous financial storms, it might be wise for the group not to rest on those laurels, especially with several watchers sniping at its US performance and worried about the economy. Investors should be equally concerned, at least until the company provides a proper update. Cautious hold.

Healthcare Locum

Our view: Buy

Share price: 91p (+2p)

Britain's multiculturalism is exemplified nowhere better than the NHS, where medics from around the world are employed to make up the shortfall of British doctors and nurses.

One company partly responsible for this is the recruiter Healthcare Locum, which announced annual results yesterday. Off the back of 13 recent acquisitions, it posted a £7.3m pre-tax profit, up from £3.1m last year, and a maiden dividend.

Several watchers have been concerned that the company has bought competitors without concentrating on organic growth. They were partly placated by chief executive Kate Bleasdale's assurance that there will be no more acquisitions in 2008. Ms Bleasdale also addressed analysts' other concern, that the company is not paying off its debt quickly enough, saying that the group's term loans are linked to Libor, which has risen during the recent banking crisis, but that the five-year deal is expected to be paid off within three.

The group points out that an aging population will require more doctors, and concedes that it has its work cut out in finding sufficiently qualified medics in the future.

The company has signed new agreements in Dubai and the US, saying that the Middle Eastern needs 40,000 new healthcare workers. The UK, however, will remain the group's biggest market. Buy.

First Artist

Our view: Hold

Share price: 65.5p (-4.5p)

The last few years have been transformational for First Artist, which has gone from being a simple footballer's agent into a fully fledged media and marketing group. It announced interim results yesterday, showing a rise in revenues and operating profit, but a fall in pre-tax profits to £281,000, compared with £180,000 in 2006. No fear, says group managing director Richard Hughes, who argues that historically the firm cashes in during the second half of the year, when footballers tend to be transferred. But investors could be forgiven for being concerned that only 20 per cent of the group's operating profit now comes from football.

Other businesses have done well, especially the newly acquired Dewynters, which runs advertising for 75 per cent of plays in the West End. While things are looking rosy for the group, the economic downturn could threaten growth, and investors may wish to wait to see how much more profit is made in the second half. Hold.

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