SAP ?accumulate?

19.10.07 - AC Research

LONDON, October 19 (newratings.com) - Analyst Henning Wagener of AC Research reiterates his "accumulate" rating on SAP AG (SAP).

According to AC Research?s research note dated October 18 and published this morning, the company has reported its 3Q07 earnings results. In that period, SAP was able to grow its software and software related sales by 13% y/y to ?1.74 billion. Not considering exchange rate effects, the sales growth was 16%. Revenues from software sales were up 11% at ?715 million. Total sales grew by 9% to ?2.42 billion, while results from operations climbed 9% to ?601 million. At 24.8%, the operating margins reached last year?s level. Finally, quarterly corporate profits improved 10% to ?408 million, or ?0.34 per share.

The reported results were in-line with the estimates, the analyst says. SAP indicated that, with respect to operations, it was able to gain market share. A contract awarded by Wal-Mart is considered very positive. The US company plans to use SAP ERP Financials for its financial proceedings.

SAP has indicated that it expects its full-year software and software-related revenues to grow at the upper limit of the projected 12%-14% range, not considering exchange rates. In the first nine months of 2007, the growth rate was 16%. Against this backdrop, this target may well be reached, the analyst mentions. The operating margins are estimated at 26%-27%, down from last year?s 27.3%. The margin contraction can be attributed to an additional investment, of ?300-?400 million, into the Business By Design middle class product.

At Wednesday?s closing price of ?39.60 and a 2008 P/E ratio of about 21, the company?s stock still seems to enjoy a rather moderate rating. Considering the planned takeover of Business Objects, SAP also surprisingly announced to continue its stock buyback programme in 4Q, as scheduled. This is expected to support the company?s share price going ahead. A further strengthening of the euro against the US dollar is considered a possible risk factor for the company?s business development. This could have a negative effect on revenues from software sales in America.

AC Research reiterates its "accumulate" rating on SAP.