Investment column: Sage accounts for its star rating

THE STOCK MARKET charms of financial stocks and pharmaceuticals may be fading, but computer software companies are still flying high at the moment. Strong results from Sage, which develops and distributes branded accounting software to over a million business customers, only served to increase the optimism surrounding the sector yesterday.

It announced a 24 per cent rise in profits to pounds 24m in the six months to the end of March, about pounds 1m more than the City expected.

Sage has yet to see the benefits to the bottom line from the high demand for its services from the millennium bug and the creation of the euro, Europe's new currency. Acquisitions are on the cards and its recently acquired US technology will give it plenty of opportunity to build up new markets in the UK. The results are all the more impressive given that the strength of sterling reduced profits by pounds 700,000. UK earnings rose a third to pounds 13.6m, against a modest 7.5 per cent improvement in continental Europe.

Software companies have been on the crest of a wave over the last few years and the market is still growing rapidly. Of course, the sector is not immune to a cyclical downturn. But if and when it comes they are less likely to suffer from shortages of skilled personnel than the pure IT groups.

And Sage is one of the best companies in the software sector. It has proved to be one of the stock market's dazzling stars over the last few years. Analysts forecast its rapid earnings growth is likely to continue. They have upgraded profit forecasts for the full year by pounds 3m to pounds 48m, rising to pounds 65.2m in the year to September 1999.

But the rub is that Sage is now sitting on an astronomical rating. The shares, which have risen 60 per cent since the start of the year, jumped another 45p to 1,387.5p yesterday. That sort of rating leaves no room for mistakes and even stock market stars must fall to earth sometime. High enough.