Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on SAP. We currently have 46 research reports from 2 professional analysts.
SAP’s 19Q4 results were mixed, though globally in line with consensus, with sales up +8% and a margin contraction of 590bp on an IFRS basis, while it expanded by 110bp on non-IFRS. It is always strange to observe such a difference trough in accounting methods. The cloud development quarter over quarter was also disappointing with a clear deceleration in new cloud bookings in relative terms. We remain unconvinced by SAP’s current equity story based on shifting from licences to cloud revenues.
As part of its Capital Markets Day, the SAP’s new team confirmed the mid-term targets (growth and margins) set earlier by the former CEO. While revenues of above €35bn and operating profit of c.€11.9bn by 2023 were both already known, the new target was on FCF, which is expected to grow by 15-25% per year and reach c.€8bn by 2023. The ambitions are there, but the execution will be more complicated in our view. We stick to our Reduce recommendation.
Europe clearly admits the domination of the cloud by the American majors. Independence is becoming increasingly urgent, especially since the Trump administration signed the Cloud Act in 2018, allowing it to ask American companies to deliver their customers’ data, including those stored outside the US. The German project, called Gaia-X, aims to create a European legal framework necessary for the development of a European cloud. Although the European Commission supports the initiative, it remains sceptical and awaits further concrete details.
Having released its Q3 preliminary results two weeks ago, SAP today provided further details with its final Q3 release. The margin development was good in both cloud and software licences. The new partnership with Microsoft is good news as it will accelerate and simplify the migration to S/4HANA. SAP confirmed its 2019 outlook as well as its medium-term ambitions. SAP’s equity story, however, does not change, and therefore we stick to our Reduce recommendation.
SAP reported a mixed set of results. Revenues grew, while margins remained flat (non-IFRS) or were down (IFRS). The street is focused on Cloud and margins, which we fully understand, but what about the gap between IFRS and non-IFRS figures? Once again, share-based compensations and restructuring costs have penalised the FCF development. When will SAP think about its shareholders? Actually, we could accept this kind of fee if the Cloud had clearly taken off. But that is not the case….
SAP reported a good set of results over the first quarter. Revenues and operating profit grew under non-IFRS standards, while the latter declined in IFRS mainly due to restructuring costs (€886m) and high share-based compensation (€517m). Further details will be disclosed at the second CMD announced for 12 November, with a focus on margins and operating leverage initiatives. We confirm our positive view on the stock, though it is not yet a strong buy.
SAP reported a disappointing operating profit in Q4, with declining margins due to its shift into the less lucrative cloud business. In addition, cloud bookings grew at a slower pace over the fourth quarter compared to previous quarters. Management revised: i) its 2020 targets, with higher sales but non-IFRS operating profit unchanged, hence reflecting lower margins and, ii) 2023 targets provide less margin expansion than expected as well. A restructuring plan will be announced in 2019.
Qualtrics: transaction overview Price: purchase price of $8bn, or €7bn (including invested employee incentive compensation) Financing: SAP has obtained a €7bn credit facility (loan) to cover the purchase price and acquisition costs. SAP expects to refinance parts of the credit facility via the issuance of debt securities. Management & governance: Ryan Smith will continue to lead Qualtrics, reporting to Robert Enslin, President, SAP Cloud Business Group. Expecting closing: in H1 19; still subject to regulatory approval.
Key highlights Total Q3 revenues up +8% (IFRS) and +10% (non-IFRS at cc) to €6.02bn. Cloud revenue growth once again accelerated, up +39% (IFRS) and +41% (non-IFRS at cc). New cloud bookings up +37% at cc (+29% in Q2 and +25% in Q1) to reach €411m. +500 S/4 HANA customers added in Q3, now accounting for c. 9,500 customers. Double-digit operating profit, up +13% (IFRS) and +10% (non-IFRS at cc). IFRS EPS was down 1% to $0.82 while Non-IFRS increased +13% to €1.14 per share. Outlook for 2018 (somewhat) raised: Non-IFRS cloud subscriptions and support revenue now expected to be in the range of €5.15-€5.25bn at cc (previously €5.05-5.2bn at cc). Non-IFRS cloud and software revenue now expected to be in the range of €21.15-21.35bn at cc (previously €21.02-21.25bn at cc). Non-IFRS total revenue now expected to be in a range of €25.25-25.50bn at cc (previously €24.97-25.3bn at cc). Non-IFRS operating profit is now expected to be in a range of €7.425-7.525bn at cc (previously €7.4-7.5bn at cc).
Solid Q2 results across the board: the accelerating momentum in the cloud business led to an upgrade of the 2018 and 2020 outlook.
Total revenues remained flat at around €5.26bn (-0.4%) Cloud subscription revenues increased 18.3% (31% at cc) to €1.07bn Licence revenues dropped 9.6% to €625m and maintenance revenues 2.7% to €2.66bn Real EBIT jumped 54.9% to €1.02bn and the EBIT margin increased from 12.4% to 19.3% Outlook more positive due to the first-time consolidation of Callidus. Cloud revenues are expected to range between €4.85bn and €5.15bn (previously €150m less)
SAP has closed the acquisition and taken over of the loss-making software company Callidus earlier than expected. Callidus was acquired on 30 January for a total of US$2.4bn and the deal was closed 66 days later. The business of Callidus will be integrated into the cloud business. Unfortunately, SAP will not be able to consolidate Callidus in the first quarter. At first glance, this is good news. Management is able to integrate the company in the fast lane, however, Callidus has already cooperated with SAP over the years. Nevertheless, we are cautious about this fast integration process. Taking the growth rates of the cloud business in the last four quarters, revenue growth was still above 20%. The trend, however, showed that it will be difficult to keep the growth rates above 20%, Cloud revenues grew 33.7% in Q1 17, 29.4% in Q2 17, 21.8% in Q3 17 and 20.3% in Q4 17.
Salesforce.com will acquire the software company MuleSoft for a total enterprise value of US$6.5bn Salesforce.com is offering US$36 per share in cash and 0.0711 in Salesforce.com shares (total offer US$44.89 per share) MuleSoft is still loss-making and valued at 22x EV/Sales in 2017 and 15.6x in 2018
Dividend increased by 12% The company increased the dividend by 12% from €1.25 per share to €1.40. Total payout will reach 41.8%, or €1.67bn, compared to 41.1% in 2016. According to the company, the payout ratio will also be increased to at least 40% in the coming years (previously 35%). According to our estimates, an annual dividend increase of €0.10 per share is a realistic assumption. The AGM will be held on 17 May 2018 and the dividend will be paid on or after 22 May. The dividend yield of 1.64% (share price: €85.32) for a technology company is quite impressive.
SAP has announced the acquisition of Callidus Software (NASDAQ: CALD) for a total of US$2.4bn. SAP is offering US$36 per share or a premium of 28% over the last 90 days. Callidus Software offers cloud-based human resource software solutions. The product enables customers to increase the efficiency and effectiveness of the entire sales cycle (sales performance management, sales execution, sales automation leader).
Research Tree provides access to ongoing research coverage, media content and regulatory news on SAP. We currently have 46 research reports from 2 professional analysts.
Seeing Machines Limited has announced that it has won a pre-production license deal with a major Automotive Tier 1 partner. This has been entered into under the terms of a pre-existing non-exclusive Collaboration Agreement to provide Seeing Machine's Driver Monitoring System (DMS) technology for an ongoing Automotive programme. For this Seeing Machines will receive a non-refundable pre-production license fee of US$5m before 30 June 2020, in addition to future volume based royalty payments for the above mentioned Automotive programme. Seeing Machines will retain all intellectual property rights associated with its DMS technology licensed to the counterparty under the Agreement.
Companies: Seeing Machines
The Coronavirus pandemic is a human tragedy of vast proportions – as well as the terrible human toll, COVID-19 has led to economies across the globe going into physical lockdown and financial freefall. Entire populations are adapting to the “stay at home” edict, to safeguard the vulnerable – and some of these changes will lead to long-lasting or perhaps permanent changes in the way we live or work. This note describes some of our client companies whose business models are well adapted to these changes, or who might see a change in long-term structural demand.
Companies: AMO BGO FDM GAMA KAPE LOOP TERN ZOO
In a remarkable coup for Bango, Korean technology leader NHN Corp is taking control of the Audiens Customer Data Platform (CDP) business by investing £6.5m for a 60% stake in the holding company, Bango Deep Ltd, with a view to scaling up Audiens through support and technology into a truly world-class CDP provider. NHN is further securing and deepening its relationship with Bango itself by taking 3.5m Bango ordinary shares (4.7% of the expanded Bango) for £3.2m. This is an excellent deal for Bango, sealed at a time of restricted travel and tightened commercial prospects and possible only because Bango is already partnered, and trusted by the Korean technology giant. The deal takes a non-core, near-breakeven business off the Bango P&L and sharpens management focus, while maintaining a substantive interest in what – now backed by NHN’s cash, expertise and data technology – should become a major global player in the lucrative, high-growth CDP market. On top of this, Bango strengthens its balance sheet with a cash injection and the strategic partnership between NHN and Bango itself is substantively deepened. We adjust our FY 2020 forecast for the change in Audiens accounting status and the cash injection, and highlight the value.
Bango has announced the expansion of its strategic relationship with NHN Corp, the Korean big data giant. NHN is investing £6.5m to take a majority interest in the Audiens business, owned by Bango. For its investment NHN gains a 60% stake in Bango Deep, the Bango subsidiary which owns the Audiens Customer Data Platform (CDP). NHN will inject its data science technology into Audiens to grow it into a world leading CDP. In addition, NHN has also subscribed for 3.5m new ordinary shares in Bango – 4.7% of the group’s existing ordinary share capital. Bango paid approximately £4m for Audiens. NHN is paying £6.5m for 60% of that business. We revise estimates following the announcement to reflect that Audiens will no longer be fully consolidated in Bango’s accounts. We believe the deal validates Bango’s investment in Audiens and represents a significant vote of confidence in both the data monetisation business and in Bango itself, by a highly successful commerce leader.
The company announced several appointments that have strengthened the management team after seven acquisitions over the past two calendar years. We believe this investment in management should form a strong foundation for the company’s next phase of growth. Alex Siffrin, the company’s largest shareholder, has stepped down from the board to focus on personal priorities
Companies: Centralnic Group
A strong interim period to January 2020 delivered the expected £26m revenue as reported in the February trading update, with a 31 January net cash balance also of £26m – EBITDA of £5.6m (post IFRS16), and adjusted PBT of £4.6m highlighting a strong performance. The Group has unchanged strategic ambitions – organic growth and M&A, both in evidence in Rail Technology & Services (RT&S) with 13% organic growth and the post period end acquisition of iBlocks. We withdrew forecasts last week due to the impact of COVID-19 on the 2H-weighted Traffic & Data Services business, given the exposure to cancelled large scale summer events, and uncertainty over traffic surveys; however, the potential for the Group is unchallenged when the world normalises. New contract wins, new product launches, new acquisitions and a hearty balance sheet continued to offer significant upside in 1H and post period end. Target price 900p remains based on our FY21 forecasts, which in theory should be consistent with previous forecasts and we look forward to reinstating numbers when the virus dust settles.
Caledonia today announces that it has taken the prudent decision to defer its approval for the payment of the second quarterly dividend (7.5c/sh - $0.9m - 7% of declared Caledonia cash). The Blanket mine in Zimbabwe remains in operation (at a slightly reduced capacity to secure Covid-19 social distancing) and the mine site remains well-stocked with supplies, so despite the current difficulties getting supplies from South Africa production at the mine can continue for some time to come; 2-3 months in our opinion, if the supply chain from South Africa ceased altogether. Touchstar is a supplier of mobile data computing solutions and managed services to a variety of industrial sectors. This morning, the group has released an update in light of COVID-19. The Board reports that it has taken swift action to re-engineer processes to adhere to government guidelines, whilst maintaining client service levels. Q1 2020 trading is reported to have been ‘broadly' in line, with revenue growth of 40% from continuing operations and outstanding orders to ship to customers in the coming months. Q1 was cash neutral, which follows on from the RNS on 5 February, of a net cash position of £849k as at 31 December 2019.
Companies: Caledonia Mining Corporation Plc Com Shs Npv Touchstar
Yesterday’s trading update confirms that IQE’s FY19 results will be in line with the revised guidance it provided in November when the full extent of the impact of the US-China trade war became visible. We have cut our FY20 revenue estimate by 6%. In IQE’s case the impact of COVID-19 on global handset demand is likely to be softened by gaining share in both the wireless and photonics markets. However, the full effect of the pandemic on the global economy and IQE’s business remains to be seen.
FIH's year end update this morning reveals an inline performance in the year to March 31st 2020, notwithstanding disruption over the past six weeks, and also updates on the respective likely effects of Covid-19 on its three business streams, with greater relative resilience seen in the Falklands business and bigger impacts already apparent on the two UK-based businesses, not surprisingly. We note that PTY, in line with requests to companies from the FCA and FRC, is formally delaying its results announcement for FY2019A (year to December), which would in the normal course of events have been published today. A new release date will be issued in due course. Re 2019, the company highlights its update from January indicating inline P&L performance in FY19A combined with good progress on cash resulting in an anticipated net positive cash situation at the year end.
Companies: FIH Group Parity Group
WANdisco recently confirmed that its Fusion product is on track for full availability with Microsoft ‘in the next few weeks’. In this audio clip CEO David Richards describes the commercial implications of this and how the business is navigating the challenges of COVID-19. WANdisco’s proprietary replication technology enables its customers to solve critical data management challenges created by the shift to cloud computing. It has established partner relationships with leading players in the cloud ecosystem including Amazon and Microsoft.
Software stocks that enable corporates to sell more, improve quality, cut costs, save employees time and/or reduce their ‘carbon footprints’ are ideally placed in today’s tech/ESG world. Cue Elecosoft, who said this morning that 2019 PBT would be “ahead of LY” (£3.67m) and “in line with expectations” (consensus £4.1m) - despite being impacted by forex (ED est -2%, weaker SEK vs £) and macro uncertainties (eg Brexit, General Election and subdued Eurozone). We think this is a creditable outcome. Not least because it underlines the resilience of the business - while the results are actually a touch better than our previous (bottom of the range) profit & cashflow estimates, albeit with revenues a smidgeon shy.
H120 numbers show continued 15% organic revenue growth with a slight shift in the mix to direct sales from connectors and the continued themes of strong (33%) International growth, strong growth in new Functionality and rising (+14%) ARPU. At present just about 20% of group sales come from clients using more than one communications channel, giving dotDigital a considerable omni-channel cross-sell opportunity.
Companies: Dotdigital Group
Cerillion is a fast-growing supplier of software solutions (OSS/BSS) to the telecoms industry. Over the past two years it has outgrown the sector, whilst increasing EBITDA margins and cash flow. The company is now at an inflection point where it is signing more high value contracts due to its growing reputation, product suite and support capabilities. In the short-to-medium term we view coronavirus-related spikes in data traffic as a positive driver, as network operators are forced to maintain or expand investment plans. Longer term, we see the business as an attractive M&A target while also benefiting from structural changes in the telecoms industry that increasingly favour smaller and more flexible suppliers. We initiate with a Buy recommendation and 225p target price.
Bango has announced FY 19 results in-line with the December-19 trading statement and our forecasts. The business has grown strongly throughout the Brexit hiatus, notably FY 19 saw the key End User Spend (“EUS”) metric double once again to £1.1bn. With the global macro-economic situation continuing to be impacted by the Coronavirus, we believe market attention will focus on the outlook. The release confirms that Bango has no supply chain dependencies, its products are available without interruption. Furthermore, management has re-iterated its expectation for continuing exponential growth in EUS. We maintain FY 20E estimates following the release and will revisit as visibility on “stay at home” behaviour improves.