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Last Price Price Target Stock Rating
€55.70 €63.9 Buy
I. The stock is down 10% since July 23:
1) The Market reproved SAP's communication on its acquisitions.
2) The Market blamed SAP all its cash went on acquisitions and too little organic development.
II. Since SAP has focused its strategy on the cloud SAP became the fastest growing entreprise cloud company at scale (SAP source):
1) SAP has a stronger growth than Oracle in cloud segment. 33% organic growth in cloud subscriptions and support (40% including acquisitions (Ariba, SFSF, Hybris)), compares well with pure-play
vendors. Every cloud company acquired has performed up to expectations (SFSF growing by 30% per year, Ariba 60% and Hybris 100%).
2) In September 2014 it made a strategic move by acquiring Concur, the cloud based travel leader.
3) The cloud revenues representing € 1.2 Bn in 2013 could reach € 3.7 Bn in 2017.
4) We continue to believe in SAP’s Cloud transition and its strategy to gain market share in the long-term.
III. January 20, SAP is expected to announce its consolidated earnings for the year 2014 and to communicate on its 2017/2020 targets:
1) The headline beat at Oracle after two years of mixed results is positive for the sector, and especially for SAP. We believe the strong growth in Oracle's EMEA cloud division (80% y/y)
proves a healthy demand.
2) SAP expects cloud revenues to exceed software revenues by 2018 (SAP source).
3) SAP’s management recently said they don’t foresee acquisitions and want to focus on organic growth. The 2014's operating margins should be 34.5%, compared to 2013 (32.8%).
4) SAP trades at 15.7x its earnings in 2015, 9% under its historical average and while the software sector trades at 18.5x.
IV. 1 hour ago SAP presented its fourth quarter 2014 results:
1) The results are better than the expectations.
2) The cloud subscriptions and support sales increased 68% compared to Q4 2013. The total revenu is up 7%.
SHORT SGE LN EQUITY:
Last Price Price Target Stock Rating
Gbp 466.3 Gbp 407.4 Sell
I. The stock is up 35% since mid-october (GPB 350) with a strong increase after 2014 earnings presentation (3rd December):
1) The new CEO Stephen Kelly reiterates the 2012’s strategy wich turned on the cloud business, 2015’s goals and guidances (6% of organic growth and 28% margin for 2015).
2) The confident and pragmatic message from the new management made a positive impression.
II. We continue to believe Sage is overvalued:
1) Because of the risks surrounding the company: lack of innovation, lower margins in the software sector and the competition (low barriers and bigger companies like the well-funded companies).
2) Sage reported in-line results and the growth has been constant for 18 months, but Sage still doesn’t find its target in the cloud business. The absolute numbers remain too small at 86k paying
subscriptions.
3) In March 2015 Sage’s management supposed to confirm if the business’s transition to the cloud softwares is still ahead.
4) The stock trades at 17x its earnings in 2015, 10% above its historical average.