Europe’s largest software company SAP shares climb on reaching 2015 targets

SAP, Europe’s largest software company, yesterday met or slightly beat its 2015 revenue and profit targets, driven by strong year-end software licence renewals and customers moving to newer internet-based software.

Shares in the German company, which are trading near record levels, rose 3.5% at one stage on the preliminary results, which were announced ahead of schedule because they were better than expected.

“It’s a solid set of figures, with some pros and cons,” said one Frankfurt trader, pointing to strong software licence renewals on the positive side and weaker margins as a negative.

SAP’s fourth-quarter operating margin sank by three points to 35.9% and was below analysts’ average forecast of 37.5%, according to a Reuters poll, reflecting the trade-off as it transitions to faster-growing but lower-margin internet-based sales.

“Margin development is not as good as anticipated. SAP clearly favourites revenue expansion at the moment in order to gain market share,” DZ Bank analyst Harald Schnitzer wrote, keeping his “hold” recommendation on the stock.

Contract renewals came on the back of sales promotions late last year to convince existing customers to upgrade to S/4 HANA, the core software platform on which SAP is betting its future.

SAP, whose customers include many of the world’s biggest multinationals, specialises in business applications ranging from accounting to human resources to supply-chain management.

The company said it expected 2016 operating profit, excluding special items, to be between €6.4 billion and €6.7bn at constant currencies, which is at the low end of analyst forecasts.

Analysts polled by Reuters on average expect operating income of €6.72bn, with estimates ranging from €6.32bn to €7.14bn.

SAP shares gained 27% in 2015, twice the European technology index’s 14% rise.

The stock hit an intra-day high of €75.75 five weeks ago.

Fourth-quarter operating profit, excluding special items, rose 3% at constant currencies to €2.28bn from the same period a year earlier.

Operating profit for the full year was €6.35bn, up 13%. Analysts on average had forecast €6.3bn.

SAP said the results were helped by renewals from existing customers of higher-margin, licensed software plus faster-growing, albeit less profitable, internet-based software and the positive sales impact of a weaker euro against other currencies.

It said that by the end of 2015 more than 2,700 customers had signed up for its new software platform known as S/4 HANA, which promises to cut the time it takes to compile business accounts and forecasts to minutes, instead of hours or days, by analysing vast amounts of data locally.


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