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Share buyback program: SAP shares stable: SAP is picking up the pace in the cloud business – but earnings are under pressure | news


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The profits from the day-to-day business have to take a back seat because of the high investments. The DAX heavyweight currently assumes for 2022 that the operating result will only remain stable at best, but could even drop by 5 percent at the lower end of the forecast range. However, SAP boss Christian Klein is surprisingly ambitious when it comes to the planned growth of the cloud software, which has been declared a future business. In the final quarter of last year, the Walldorfers made the final sprint. “More and more companies are choosing SAP to reposition themselves, build stable supply chains and develop into sustainable companies on the way to the cloud,” said SAP CEO Klein to the results from late Thursday evening. The manager wants to significantly boost the cloud business in the coming years so as not to be left behind by the competition in the market for business software. Subscription cloud software for use over the network is considered the future of the industry and is already standard in many areas cloud revenue increased by around a sixth to 9.42 billion euros. SAP must also pick up the pace here in order to generate more than 22 billion euros in sales with programs from the cloud by 2025, as Klein had announced. Many investors are skeptical that this will be possible by then. Overall, management expects total product sales to grow by 4 to 6 percent in 2022 – which means, conversely, that the lucrative license sale of software should continue to decline. This is one of the reasons why the calculated operating result is noticeably more leisurely. Analysts had more on the slip than the now estimated 7.8 to 8.25 billion euros in earnings before interest and taxes adjusted for special effects at constant exchange rates, as JPMorgan expert Stacy Pollard wrote in an assessment. Last year was already operational Earnings shrunk by one percent to 8.23 ​​billion euros because exchange rate effects slowed it down and the group accepted high costs for the stronger shift to the cloud. Klein had promised meager fare anyway when it came to the results for 2021 and 2022. Because the competition from the US tech groups Oracle and Salesforce SAP is breathing down their necks and market share could be lost, Klein had a new product bundle with “Rise” at the beginning of last year launched in order to encourage customers to switch to the cloud faster with simpler means. Now he spoke of a “huge success” of the offer. Accelerating cloud business requires investments in technology, products and advertising. In addition, the cloud products are initially not as profitable as expensive software packages in a one-time license sale, but should gradually pay off over the term – because the cloud software is either paid for as a subscription or through usage fees. SAP’s total sales rose by 2 percent in 2021 year-on-year 27.8 billion euros. The bottom line is that net profit in 2021 also climbed by 2 percent to 5.38 billion euros. SAP had to spend a lot more money on stock-based employee compensation: This time around 2.8 billion euros were booked compared to almost 1.1 billion in the previous year – this was mainly due to the IPO of the US market research subsidiary Qualtrics and the increased share price. In return, SAP benefited from the good performance of its investments in start-ups via the venture capital investment company Sapphire Ventures. SAP now wants to buy back shares worth up to one billion euros this year. The purchased securities are to be used for future awards from a share-based payment program, it said. “By balancing our share-based payments for new awards from 2022 primarily with shares instead of cash payments, we want to further strengthen the equity culture in our workforce and ensure that the interests of our employees are closely aligned with the interests of our shareholders,” said Chief Financial Officer Luka Mucic.

SAP stock in focus

Pressure on SAP’s results amid heavy investment hit investor sentiment on Friday. Despite surprisingly strong quarterly sales in all divisions, the software manufacturer’s stock turned negative after morning gains. The general weakness of technology stocks on Europe’s stock exchanges also had a negative impact, because the US technology exchange Nasdaq fell sharply on Thursday due to interest rate concerns. The papers of the largest European software manufacturer are listed in the afternoon in a weakening DAX at the previous day’s level at 120.50 euros. The shares of the smaller competitor Software AG lost 3.69 percent to EUR 31.86 and were additionally burdened by negative analyst comments. The industry index Stoxx Europe 600 Technology fell in the wake of the NASDAQ as the bottom of the 19 industries in Europe a trader the reversal of the SAP share in the red. He thus confirmed the view of Frederik Altmann from Alpha Wertpapierhandel, who had already spoken of “mixed financial year figures” before the start of trading. Although the Walldorf-based company exceeded the company’s targets for cloud and software revenues in the fourth quarter, the EBIT margin could not keep up with the sales growth. The earning power is correspondingly “unsatisfactory”. In addition, the first outlook for the new year is rather cautious. Market expectations are already at the upper end of the target ranges specified by SAP for cloud and software revenues and for operating profit, he explained, and had therefore warned in the morning of a possible collapse in price gains in the course of trading. “Although SAP is in a transformation phase and analysts are celebrating the strong cloud business, I still lack the overriding result imagination.” The stock experts at the investment bank Stifel Europe nevertheless praised the “better than expected sales figures across the board” from SAP and that too operating result. In addition, in the fourth quarter of 2021, the order backlog in the cloud business, a very important indicator for SAP, increased by more than a quarter year-on-year. This indicates strong momentum in the “Rise with SAP” strategy program and suggests further acceleration in the current year. The stock experts called the outlook for the operating profit for 2022 conservative, with reference to preliminary investments. In the MDAX, the shares of Software AG, which brought up the rear, suffered primarily from a canceled buy recommendation from the US investment bank Goldman Sachs. Their investment rating is now “neutral”. Analyst Gautam Pillai lowered the price target from 50 to 39 euros and pointed out that the predictability of the short to medium-term business development had decreased noticeably. In addition, further growth initiatives are likely to be forthcoming, but this will initially cost money. Analyst Uwe Schupp from Deutsche Bank was also more cautious about the Darmstadt-based company in an outlook on the expected quarterly figures and referred to risks, for example with a view to private equity participation Investors Silver Lake or because of the hacker attack in 2020. He also fears that the company’s targets for 2022 could disappoint and therefore lowered the price target from 36 to 33 euros. WALLDORF (dpa-AFX) / (dpa-AFX Broker)

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