What analysts expect for the SAP share

E.uropa’s largest software manufacturer ended a difficult year with a decent final quarter. The previous evening, SAP had surprisingly presented preliminary figures for the final quarter and provided an outlook for 2021. After a subdued third quarter, the Dax group had a better run again in the final quarter despite the corona crisis and lockdowns in some sales regions. The forecast for 2021 was in line with analyst expectations.

According to the preliminary figures, earnings before interest and taxes adjusted for special effects between October and the end of December amounted to EUR 2.77 billion, around 3 percent below the previous year’s figure – but that was significantly better than analysts estimated, because above all the license sales in the fourth quarter did not fall as much as feared in the Corona crisis. At the same time, cloud revenues continued to rise compared to the same quarter of the previous year. Overall sales fell by 6 percent to 7.54 billion euros.

In its own assessment, SAP was able to mark an “impressive end” for the year in the important cloud business. In North America and Europe, incoming orders for the cloud and software license revenues developed better than expected by the group. The demand for e-commerce solutions, the SAP Business Technology platform and offers from the American subsidiary Qualtrics remained high.

The new offer for realigning companies was also well received by pilot customers. In contrast, the American subsidiary Concur, the customer travel expense management, continues to suffer from the corona restrictions.

Change of personnel in difficult times

Because of the Corona crisis, the company can look back on a problematic year. In the spring, the group began to feel the effects of the Covid 19 pandemic and rowed back in its annual targets. Then co-boss Jennifer Morgan had to leave the top of the company after only about six months. After further problems became apparent in the third quarter, the now sole acting CEO, Christian Klein, pulled the handbrake again on the annual targets in October. Because of a shift in strategy around the cloud business, Klein also erased the medium-term forecasts for profitability, thereby causing the share price to slide sharply.

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To the detailed view

At the same time, the Walldorfers stepped on the cost brake more strongly last year. Therefore the doorbell is ringing now. The operating cash flow is expected to double in the full year compared to the previous year and come out at around seven billion euros. That would be around a billion more than last planned. For the year as a whole, revenues were one percent below the previous year at 27.34 billion euros, but the operating result increased by one percent to 8.28 billion euros. SAP will present the complete quarterly report on January 29th.

As part of the key data, the group also provided the outlook for 2021. The management around CEO Klein had already warned in October of the consequences of the pandemic, which should weigh on demand until at least half of the year. Now the group expects that the revenues from the sale of software subscriptions and licenses will stagnate in 2020 or increase by a maximum of two percent after adjusting for currency effects.

Among them, however, SAP believes the rapidly growing software for use over the Internet will grow by 13 to 18 percent. The management plans adjusted operating profit of 7.8 to 8.2 billion euros – that would be a decrease of between one and six percent. With the values, SAP is as expected by experts.

After the October shock, the fresh business figures and the outlook were able to reconcile investors on the stock exchange. The SAP share went against the generally weaker trend in the Dax and was listed at the top in early trading with plus 1.90 percent at 106.18 euros. The fourth quarter and the preliminary annual figures were better than expected, according to the first reaction of a trader. The outlook should also be received positively, even if the pandemic will weigh on the 2021 financial year. The trader now called the outlook extremely conservative.

At the end of October 2020, the SAP titles crashed by more than a fifth after the reduced annual and medium-term targets. In the end, however, they were able to recover from this shock. Since mid-December they have also re-established themselves above the 100 euro mark. The planned Qualtrics IPO provided a boost.

Some positive reactions

Some analysts who had lowered their votes and price targets for the paper after the change in strategy reacted positively. Overall, the results should alleviate the concerns of investors that SAP may feel more headwinds in the cloud business than the competition, wrote analyst Andrew DeGasperi from Berenberg Bank in a study. With regard to Qualtrics, the management statements regarding the recent good demand are a positive signal with regard to the planned IPO of the American subsidiary.

UBS analyst Michael Briest especially praised the free cash flow, which was better than expected by the market, he wrote in an initial assessment on Friday. The outlook for the software company’s operating result for 2021 is four percent below the consensus estimate.


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