SAP ?accumulate?

20.10.06 - AC Research

LONDON, October 20 (newratings.com) - Analyst Henning Wagener of AC Research reiterates his "accumulate" rating on SAP (SAP).

According to AC Research?s research note dated October 19 and published this morning, the company has reported its provisional Q306 earnings results. SAP was able to increase its software license sales by 17% y/y to ?691 million in the quarter. Adjusted for exchange rate effects, the company?s sales growth reached 20%. Total sales, at the same time, were up 11%, climbing to ?2.245 billion. Operating profits were up 13%, climbing to ?583 million. The pro-forma operating profits recorded a 17% increase to ?606 million. Thus, the corresponding margins improved 1.2 points to 27%. Finally, quarterly corporate earnings were up 16%, climbing to ?388 million, or ?1.27 per share.

In all, the published earnings results were marginally ahead of the estimates. Here, the development of software license sales is considered as a particularly positive aspect, the analyst says. With the considerable growth rate of 17%, SAP was able to underline that the poor second-quarter growth rate was only an accidental slip. With a 19% growth rate in software license sales, the company?s performance in the US was also rated particularly positive, AC Research adds. Adjusted for currency exchange rate effects, the growth rate even reached 23%. Thus, SAP was able to boost its market position in the US.

The company continues to expect a 15%-17% rise in software license sales for 2006. With the strong 3Q06 performance, SAP was able to raise its software license sales by 15% to ?1.84 billion over a nine-month period. Growth rates in the Americas were particularly positive. Here software license sales in the first three quarters of 2006 were up 26%, climbing to ?757 million. Considering this, the company?s 2006 full-year target may well be reached, the analyst believes. AC Research mentions, however, that SAP is unlikely to reach the upper limit of the envisaged 15%-17% range. Moreover, pro forma earnings per share for the full year of 2006 will be marginally above the forecast range of ?5.80-?6. In this context, however, experts projected that the upper limit of this range would be reached.

At the closing price of ?164.60 on October 18 and a 2006 P/E ratio of about 27, the company?s stock continues to enjoy a rather moderate rating. Last quarter, SAP once again proved its abilities for growth. Thus, the analyst expects the company to further enhance its market position within the next few quaters. Therefore, there seems to be a slightly positive ratio between chances and risks for an investment in the company?s stock, the analyst says.

AC Research reiterates its "accumulate" rating on SAP.