Profit warning sends Sage shares tumbling: Computer company falls victim to exchange gag on analysts' briefings

SAGE, the high-flying computer software group, saw its shares tumble by almost a quarter yesterday after warning that its profits would not match market expectations because of problems with its US operations.

Sage said profits before tax in the year to 30 September would be lower than the pounds 10m- pounds 11m that had been forecast, but would still be ahead of last year's figure of pounds 8.8m. It ended the day capitalised at pounds 79m after its shares plunged from 503p to 380p before edging back to 385p.

But analysts felt the market had over-reacted and that Sage had fallen victim to the Stock Exchange's clampdown on profits warnings.

In May, London International Group, the condoms to photo-processing company, was censured by the exchange for revealing price-sensitive information to analysts and institutions rather than to the market generally.

'Spiky share price movement is a problem you're going to get now when small companies make these sudden announcements,' said one analyst, who has trimmed his profit forecast for the year to 30 September from pounds 10m to pounds 9.5m.

'A lot of companies are terrified to talk to analysts since the LIG problem. They don't want to get hauled over the coals and they're reluctant to return calls.'

David Goldman, chairman, said Sage had been feeling uncomfortable about taking routine calls from analysts. The company decided to issue the official announcement even though its advisers said it did not have to do so.

'You go by the book and this is what happens,' he said. 'There was some disquiet about the US operations but we weren't trying to hide it. Things might have got a little bit worse but we're saying profits will still be ahead of last year.

'We don't think the shares were overvalued. We're confident that the shares will recover when the real message gets out.'

The problems at Sage stem from two US subsidiaries: Remote Control International, which is responsible for Telemagic, a contact-management software product, and DacEasy, the accounting software arm.

Telemagic is understood to be making an operating loss of about pounds 1m a year, and Sage said yesterday it had brought forward expenditure associated with developing a new product to run under the Windows operating system.

DacEasy has also suffered by competitors introducing Windows products, although it is now marketing its own, similar product. 'It was necessary to go through this exercise of getting the product up to scratch,' Mr Goldman said.

'It's a question of what do you do for the best? Run for short-term profit or run for the future?'

(Photograph omitted)