Sage Group hit by underperforming U.S. payments business

(Adds analyst comment, detail)

LONDON, Jan 26 (Reuters) - Shares (Berlin: DI6.BE - news) in Sage Group (LSE: SGE.L - news) fell nearly 6 percent on Thursday after the British software company said a disappointing performance by its U.S. payments business hit its first quarter results and that it might sell the division.

In a quarterly trading update, Sage said it also saw a marked decline in revenue from its software and software-related services (SSRS) division in France in its first quarter, which ended on Dec (Shanghai: 600875.SS - news) . 31.

Revenue from U.S. payments showed a slight decline in the quarter and the company said it was reviewing options for the U.S. payments business, including a possible sale.

Apart from the United States and France, Sage said it met or exceeded its targets in all other countries.

Its total 'organic' revenue across all markets increased by 5.1 percent in the quarter, and rose 5.9 percent once the U.S. payment business was stripped out.

"The Q1 update is slightly disappointing on organic revenue growth, with problem areas in U.S. payments and in France cyclical revenue," analysts at Investec (LSE: INVP.L - news) said in a note, adding that the U.S. payments business was "potentially on the block".

Shares in the firm dropped 5.8 percent to their lowest since June, and were the top faller on London's blue chip FTSE 100 index.

Sage said the first quarter performance was broadly in line with expectations. Separately to the U.S. payments' review, it also said it was considering options on how its other payment services were delivered, including exploring potential partnerships.

Steve Hare, chief financial officer, said on a call that services for transferring money would remain an important part of what Sage offers clients even after the review.

"At its heart, the rationale is not challenging whether we remain in payments, it's simply what's the best way of delivering the service to our customers."

The payments division also serves the UK & Ireland and South Africa.

Hare said he was confident the firm would achieve its previous guidance of at least 6 percent organic revenue growth in 2017 and at least a 27 percent organic operating margin.

Organic recurring revenue increased by 9.6 percent in the first quarter, driven by software subscription growth of 31 percent, though organic SSRS revenue declined by 10 percent. (Reporting by Alistair Smout; Editing by Greg Mahlich and Susan Fenton)