Analysts Remain Cautious Over SAP Post Q2 Results

Analysts remained divided with a cautious tone over SAP SE's SAP prospects post Q2 results.
Barclays analyst Raimo Lenschow saw SAP managing expectations into Q2, and the move lower in consensus halved the adj. EBIT miss.
He found the FY guidance cut was unexpected, though, especially following reiterations in the quarter, and could not be avoided after an incremental license miss.
He saw further downside risk if the license did not stabilize.
Lenschow reiterated an Equal Weight and reduced the price target from $108 to $106 (13% upside).
JMP Securities analyst Patrick Walravens maintained a Market Perform and a $170 price target following mixed Q2 results.
He saw strong Q2 performance amid macro challenges with the cloud business beating consensus and big customers like Samsung Electronics Co., Ltd. SSNLF moving to S4/HANA.
Though the profitability was affected by withdrawal from the Russia business, the business shifted faster than expected to the cloud and from upfront to recurring revenue.
He saw the shift as having positive medium-term implications.
He saw that SAP was confident it would grow its operating profit "in double digits" in 2023.
However, he cut his non-IFRS EPS estimates for 2022, 2023, and 2024.
BMO analyst Keith Bachman noted that SAP management guided lower FY22 operating profit, which investors partially expected.
Furthermore, management retained the FY22 FCF guide even with lower operating profit.
SAP cloud adoption and net new cloud customers remained strong.
He modestly cut his FCF estimates for FY22 and FY23 and thus slashed his price target to €104 from €105.
He preferred Microsoft Corp MSFT and Salesforce, Inc CRM in large-cap software.
He was concerned if SAP had been conservative enough in guidance given the risk of further macro deterioration.
Berenberg analyst Nay Soe Naing saw cloud revenues grow by 32% Y/Y at CC in Q2, and growth in S/4HANA Cloud, which he believes is key to the overall cloud transition, continued to accelerate.
Gross margins were already expanding in the cloud business beating his expectation.
Strong cloud performance in Q2 underpinned his investment view that cloud transformation was likely to be a success and could lead to a re-rating of the SAP shares, which currently trade at a c30% discount to their average for the past five years.
Price Action: SAP shares traded higher by 3.62% at $93.56 on the last check Friday.

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