SAP ?accumulate?

24.07.06 - AC Research

LONDON, July 24 (newratings.com) - Analyst Henning Wagener of AC Research reiterates his "accumulate" rating on SAP (SAP-EUR).

According to AC Research?s research note dated July 21 and published this morning, the company has reported its 2Q06 earnings results. SAP was able to grow its software license sales by 8% y/y to ?621 million, the analyst mentions. The company posted its total sales up 9% at ?2.2 billion. Earnings from operations rose 15% to ?531 million, the analyst says. Pro forma operating earnings climned to ?558 million and pro forma operating margins reached 25.4%, the analyst adds. SAP posted its earnings up 43% y/y at ?414 million, or ?1.35 per share. The company?s pro forma corporate earnings result improved 38% to ?432 million, or ?1.41 per share, the analyst adds.

The North American region once again represented the main area of growth for SAP, AC Research reports. In this region, the company was able to grow its license sales by 18% to ?239 million, the analyst adds. Software license sales in the US were up 16% to ?201 million, while software license sales in Germany improved 8% to ?100 million, the analyst says.

By and large, the presented results were in-line with the data published one week ago, and thus did not come as a surprise, the analyst mentions. As far as earnings after taxes are concerned, SAP benefited above all from lower tax rates, the analyst says. In particular, the development of software license sales in the North American region is considered rather positive, AC Research adds. For the full year of 2006, the company has projected its license sales to grow between 15% and 17% and pro forma earnings per share to reach between ?5.80 and ?6.

At the current share price of ?141.50 and a 2006 P/E ratio of roughly 24, SAP?s stock seems to continue to enjoy a rather moderate rating, according to AC Research. Although license sales were slightly disappointing in 2Q, the company was able to deliver convincing margins, the analyst points out. Against this background, SAP may be able to exceed its full-year earnings forecasts, the analyst says. In this context, the fourth quarter, which has traditionally been the strongest quarter of the fiscal year, will be of a decisive importance, the analyst adds.

AC Research reiterates its "accumulate" rating on SAP.