The DAX heavyweight raised almost all key outlook figures for 2025 for the continued business – only with the free inflow of cash the Walldorfer calculate a little less. SAP boss Christian Klein also announced on Tuesday at the customer fair in Orlando – after the stock market closed in this country – a share buyback worth billions. The news was well received on the stock exchange.
Analysts commented positively on the outlook, and a trader also described the targets as optimistic. In addition, the share buyback is somewhat more extensive than expected, according to the stock marketer. However, some investors may have been hoping for more positive surprises. It is therefore quite conceivable that some investors with a short-term orientation could later rake in profits after the shares have performed well.
On Wednesday, however, it is the turn of the optimists. The share rose temporarily via XETRA by 1.58 percent to EUR 123.24, but remained below its high for the year.
On Tuesday, the shares finally managed to close above their 21-day moving average, which indicates the short-term trend. A continuation of the upward trend this year is thus becoming apparent, at least from a technical point of view. This had taken the shares to EUR 124.60 at the end of April, which not only meant the highest level since the beginning of 2022, but also a gain of almost 30 percent in the year to date, which means a place in the top group of the leading German index DAX. In terms of stock market value, SAP is the undisputed leader in the DAX with a market capitalization of 151 billion euros – since the Linde gases group moved to the NYSE stock exchange. The technology group Siemens follows in second place with around 120 billion euros.
SAP wants to use the money from the sale of the US market research company Qualtrics to buy back shares worth up to 5 billion euros. The program is subject to the proviso that the deal with financial investor Silver Lake is completed as planned in the second half of the year, bringing 7.7 billion US dollars (7.1 billion euros) into SAP’s coffers.
Many analysts had already expected a share buyback, but the new SAP CFO Dominik Asam is a little more optimistic about the new goals for 2025 than the experts had on the slip. The new outlook is solid, and management’s comments about the business beyond 2025 are even optimistic, wrote analyst Toby Ogg from Bank JPMorgan in an initial assessment. Analyst Mohammed Moawalla from Goldman Sachs was not only satisfied with the goals and the participation of the shareholders, but also the confirmed investments in the development as part of the ongoing customer fair Sapphire.
Asam and CEO Klein are now assuming total sales of over 37.5 billion euros for 2025, of which more than 21.5 billion euros will come from the cloud. Qualtrics is now excluded as a discontinued operation. Previously, total revenue of over 36 billion euros was planned, of which the software for use over the network should contribute more than 22 billion euros.
In terms of the operating result for 2025, the management wants to keep the previous level in practice – even without the Qualtrics contribution, which should be compensated. Adjusted for special items and before interest and taxes, a profit of around 11.5 billion euros should be achieved in 2025. Including the Americans, SAP had recently made an operating profit of more than 11.5 billion euros.
Analyst Antonin Baudry from the major British bank HSBC sees the new targets as grist to the mills of the optimists. Knut Woller of Baader Bank wrote that SAP’s updated ambitions now point to positive operational demand dynamics and stronger business development without Qualtrics in the coming years than originally thought. “However, this growth also requires investments,” he added. And this implies – in view of the continued operational profit ambitions with higher sales at the same time – “lower margins than previously assumed, and also a somewhat weaker self-generated free cash flow” (FCF).
Despite this, he and Baudry remain optimistic about SAP shares. Baudry, for example, sees “the glass half full” in view of the raised sales forecasts, despite the weaker margin profile and the existing risks for the FCF forecast. He now considers SAP’s product portfolio to be more mature and expects that the advantages of this strategy will soon become apparent.
Asam is now targeting around 7.5 billion euros for free cash flow – an indicator of a company’s financial strength, which can also provide information about its ability to pay dividends. So far it was 500 million euros more: An estimated 300 million less are due to the Qualtrics sale, but SAP also estimates 200 million euros less in the remaining business.
“We are raising our revenue target for continuing operations by nearly €4 billion and expect a further significant acceleration in revenue growth through 2025 and beyond,” said Klein. Total sales are expected to grow by more than 8 percent per year on average during this period, and cloud revenue by even more than 23 percent.
An increase of around 13 percent per year is planned for the adjusted operating result. Asam spoke of setting the course for “sustainable, dynamic growth beyond 2025”. Expert Ogg from JPMorgan assessed this as upward potential for the medium-term goals, after all Asam was known to be rather cautious. And Baader Bank expert Woller also estimates that Asam should have approached the 2025 goals conservatively at first.
This means that profitability should also increase again – as previously promised – after the company had invested a lot of money in the conversion to cloud services in the past two years, as a result of which the margin suffered.
Klein had ordered the group to take a more in-depth course in the direction of software from the network, including a new product bundle that is intended to make it easier for customers to switch to the cloud with the SAP core programs. Klein sees a business potential of more than 25 billion euros with existing customers alone if they switch.
Ultimately, SAP is hoping for higher customer loyalty and stronger growth through the step, if the subscription payments accumulate over time – and ultimately also higher profits than in the once so lucrative business from license sales and subsequent maintenance. Although this resulted in high one-off purchases, customers could then use the software for as long as they wished, even without a maintenance contract. In the meantime, online use, updates and support against ongoing payments have become standard in the software industry anyway.
Rivals such as Salesforce, Oracle and Workday also essentially focus on this business model. SAP wants to remain the world’s number one for business software, Klein told financial analysts. The domain of SAP is the control of central company functions with so-called ERP software (Enterprise Resource Planning).
In particular, arch-rival Oracle is increasingly affecting the German group with its cloud offerings (Fusion, Netsuite) in the ERP area. The sales software specialist Salesforce is currently struggling with its own problems – and SAP has shelved the plan to attack the competitor here more strongly in its traditional business, among other things with the announced sale of Qualtrics.
At the customer fair in Florida, Klein presented new functions with the help of artificial intelligence (AI) that are intended to support companies. The topic of AI is currently the area that sparks the most imagination in the industry, mainly due to the emergence of AI-powered language models like the one in the text robot ChatGPT. Many other tech giants like Google are now going public with their own systems.
SAP is working with Microsoft, the main investor in ChatGPT operator OpenAI. Companies should now be able to address customers in a more personalized way. The SAP subsidiary for personnel management software should be able to access services from Microsoft and OpenAI in order to improve the recruitment, retention and qualification of employees.
SAP and Lidl mother announce partnership in cyber security
The software manufacturer SAP will work together with the Schwarz Group to defend against cyber attacks. As part of the strategic partnership, SAP relies on a security solution from XM Cyber, as the Schwarz Group announced on Wednesday. In addition to XM Cyber, it also owns the retail chains Lidl and Kaufland. With the help of XM Cyber, the DAX group from Walldorf wants to secure its own IT infrastructure and the systems of its customers this year.
“The fact that SAP, Europe’s largest software company, relies on the XM Cyber solution is confirmation for us that we have a very good product,” said the Schwarz Group’s digital boss, Rolf Schumann, of the German Press Agency. The software simulates a network in real time and prioritizes thousands of attack paths that a hacker could take. “For customers, this means that if they close the very gateways that are at the top of the list, nobody can access their critical resources,” explains Schumann.
The partnership builds on a long-standing collaboration between the two companies from northern Baden-Württemberg. With the cooperation, “we are significantly expanding the security components of our offer and continue to enable optimal protection of our customers’ data and processes,” said the SAP board member for product development, Thomas Saueressig, according to the announcement.
The Israeli security specialist XM Cyber has been part of the Schwarz Group from Neckarsulm since the end of 2021. Initially only intended for the IT security of their own companies, Schwarz has been offering the technology to other companies for a good year now. According to Schwarz, the software customers include the stock exchange operator Nasdaq, the Bank of England and the Port of Hamburg.
The parent company of Lidl and Kaufland has also been an IT service provider for a long time. Similar to the retail giant Amazon, the empire of Lidl founder Dieter Schwarz is investing in the profitable cloud business and, according to industry experts, is already one of the largest providers in Germany. According to their own statements, around 7,000 people work at Schwarz IT and Schwarz Digital.
WALLDORF/ORLANDO (dpa-AFX)
Leverage must be between 2 and 20
No data
More news about SAP SE
Image sources: nitpicker / Shutterstock.com, SAP AG