SAP "hold"

23.04.07 - AC Research

LONDON, April 23 (newratings.com) - Analyst Henning Wagener of AC Research reiterates his "hold" rating on SAP AG (SAP).

According to AC Research?s research note dated April 20 and published this morning, the company has reported its provisional 1Q07 earnings results. In that period, SAP was able to grow its sales revenues by 6% y/y to ?2.166 billion. At the same time, software and software-related service revenues were up 9% to ?1.519 billion. Adjusted by currency exchange rate effects, the growth rate was 15%. Revenues for software licences improved by 10% to ?563 million, with a growth rate of 16%, not considering exchange rate effects.

Operating profits improved 6% to ?433 million. In a traditionally weak first quarter, the operating margins reached last year?s level of 20%. Earnings before taxes rose 9% to ?466 million, while earnings after taxes were up 10% from the corresponding previous year level, climbing to ?310 million, or ?0.26 per share.

The company?s results were in-line with the estimates, the analyst mentions. In case of software licence revenues though, SAP exceeded the estimates. Here, the American region showed by far the best performance, with a 22% growth rate, not counting exchange rate effects.

For the full year of 2006, the company expects a 12%-14% growth rate in software and software-related service revenues. Due to a higher investment volume in the course of the planned market introduction of new software products for medium sized enterprises, an operating margin between 26% and 27% is expected. On the basis of the traditionally weaker first quarter results, these targets should be reachable, the analyst says.

At Thursday?s closing price of ?36.10 and a 2007 P/E ratio of roughly 21, the company?s stock still seems to enjoy a rather adequate rating, according to AC Research. A possible economic downturn in the US and the continuing strengthening of the euro might be considered as risk factors, the analyst mentions. Against this backdrop, some clearly negative exchange rate effects might be possible as the year progresses. At the same time, SAP is expected to gain additional market share, the analyst says. The company has indicated that it was able to increase its share of the global market by 0.6 points sequentially to 25.1% by the end of 1Q07.

AC Research reiterates its "hold" rating on SAP.