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Germany’s SAP shares slip as improved outlook still falls short

BERLIN: Shares in SAP fell on Wednesday, with investors disappointed that the German business software group‘s revenue and profit outlook had not been lifted further.

Shares in the firm whose software is used for finance, human resources management and supply-chains were down 2% by mid morning, after an initial pre-opening rally in Frankfurt.

SAP said it expected cloud revenue to grow by 15%-18% in the year, helping overall cloud and software revenue gain by 2%-3%. Operating profit was forecast in a range from unchanged to 4% lower for 2021.

Citi analyst Amit Harchandani said revised guidance for revenue and profit was below consensus forecasts, while SAP’s leading indicator for new cloud business showed only incremental improvement.

He said SAP’s forecasts came up “against rather optimistic buyside expectations”. Refinitiv data show 25 analysts rating SAP with ‘buy’, 10 with ‘hold’ and just two with ‘sell’.

SAP ditched its mid-term forecasts in October as Chief Executive Christian Klein went all-in on cloud services that generate subscription revenue spread over time, in contrast to software licences that deliver big up-front fees.

RISE WITH KLEIN?

He launched Rise with SAP, an all-in-one digital transformation package in January. Strong take-up helped drive 20% growth in the current cloud backlog – a measure of incoming business – during the second quarter.

The cloud backlog for flagship database S/4HANA was up 48%, confirming progress on the Rise with SAP programme. The firm said it saw momentum, particularly in the United States, where it predicted an acceleration in cloud revenue growth in the second half.

“We’re seeing strong adoption of our cloud portfolio as customers select SAP for their business transformation. Our strategy is working,” Klein said.

Jefferies analyst Julian Serafini said the results showed that SAP’s cloud transition “continues to succeed”.

But others say SAP’s incremental increases in guidance in the last two quarters have failed to impress. “An in-line update nowadays is usually not seen as good enough and leads to some sell-off,” Citi’s Harchandani said.

SAP’s shares still trade below their levels before last October’s forecast cut, which set off a selloff that stripped the company of its position as Europe’s most valuable tech firm.

Adjusted revenue, up 3% at constant currency to 6.67 billion euros ($7.85 billion) in the quarter, was in line with median estimates of analysts compiled by Refinitiv.

Operating profit, up 3% at 1.92 billion euros, was ahead of the median view. Adjusted earnings per share rose 50% to 1.75 euros, with Chief Financial Officer Luka Mucic highlighting SAP’s profitable venture capital investments.

SAP lifted its forecast for cloud and software revenue for the full year by 200 million euros to 23.6 billion-24 billion euros, while it now sees operating profit at 7.95 billion-8.25 billion euros – up 150 million euros at the lower boundary.

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