Analysts Remain Cautious Over SAP Post Q2 Results

  • Analysts remained divided with a cautious tone over SAP SE's SAP prospects post Q2 results.
  • Barclays analyst Raimo Lenschow saw SAP managing expectations into Q2, and the move lower in consensus halved the adj. EBIT miss. 
  • He found the FY guidance cut was unexpected, though, especially following reiterations in the quarter, and could not be avoided after an incremental license miss. 
  • He saw further downside risk if the license did not stabilize.
  • Lenschow reiterated an Equal Weight and reduced the price target from $108 to $106 (13% upside).
  • JMP Securities analyst Patrick Walravens maintained a Market Perform and a $170 price target following mixed Q2 results.
  • He saw strong Q2 performance amid macro challenges with the cloud business beating consensus and big customers like Samsung Electronics Co., Ltd. SSNLF moving to S4/HANA. 
  • Though the profitability was affected by withdrawal from the Russia business, the business shifted faster than expected to the cloud and from upfront to recurring revenue. 
  • He saw the shift as having positive medium-term implications.
  • He saw that SAP was confident it would grow its operating profit "in double digits" in 2023. 
  • However, he cut his non-IFRS EPS estimates for 2022, 2023, and 2024.
  • BMO analyst Keith Bachman noted that SAP management guided lower FY22 operating profit, which investors partially expected. 
  • Furthermore, management retained the FY22 FCF guide even with lower operating profit. 
  • SAP cloud adoption and net new cloud customers remained strong. 
  • He modestly cut his FCF estimates for FY22 and FY23 and thus slashed his price target to €104 from €105.
  • He preferred Microsoft Corp MSFT and Salesforce, Inc CRM in large-cap software. 
  • He was concerned if SAP had been conservative enough in guidance given the risk of further macro deterioration. 
  • Berenberg analyst Nay Soe Naing saw cloud revenues grow by 32% Y/Y at CC in Q2, and growth in S/4HANA Cloud, which he believes is key to the overall cloud transition, continued to accelerate. 
  • Gross margins were already expanding in the cloud business beating his expectation. 
  • Strong cloud performance in Q2 underpinned his investment view that cloud transformation was likely to be a success and could lead to a re-rating of the SAP shares, which currently trade at a c30% discount to their average for the past five years. 
  • Price Action: SAP shares traded higher by 3.62% at $93.56 on the last check Friday.
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