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23 Feb 2022
CFO Roadshow highlights rev growth acceleration
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CFO Roadshow highlights rev growth acceleration
SAP SE (SAP:ETR) | 0 0 0.0%
- Published:
23 Feb 2022 -
Author:
Slowinski Stefan SS | Castillo-Bernaus Ben BC -
Pages:
16
We recently conducted a Global roadshow with SAP CFO and Executive Board Member Luka Mucic following the company''s recent Q4 results. We highlight several key takeaways.
Deal sizes getting bigger, duration extending, visibility improving, rev growth accelerating
In FQ4, SAP saw S/4HANA Cloud (a EUR1.4bn run rate business) revenue grow 61%, current backlog (at EUR1.6bn) grow 76%, and we believe further acceleration is likely based on the triple digit order entry growth. Conversion rates from maintenance to subscription are outpacing expectations (above 2x), duration of contracts is extending (to 3.9 years overall, but with many RISE contracts 5+ years) and attach rates for line of business applications is improving (particularly for SuccessFactors, but also CX / Commerce, Ariba, Concur and Qualtrics). We believe this has given the company confidence to already guide for accelerating Cloud revenue growth in 2022 and again in 2023. We believe a 2025 revenue guidance upgrade may be possible as early as at the end of 2022 (we now model ~EUR39bn of revenue in 2025 vs the EUR36bn+ guidance).
The margin story will have to wait until 2023, but EPS growth prospects are attractive
With software licenses likely down to just 9% of sales in 2022 (Cloud at 40%), mix shift should no longer be a major drag on margins, and improvements in Cloud gross margins should eventually pull up group margins. But the inflection of Cloud GMs will not likely be seen until mid-2023. Stock comp as a % of sales should peak in 2022 (at ~10%), seeing IFRS margins also improving as of 2023. We believe non IFRS EPS can grow double digits in 2023, and then 20%+ out to 2025 (with Exane EPS, which includes stock comp, growing even faster, at ~30% as of 2024).
Light at the end of the tunnel. Re-rating likely as SAP executes on Cloud transition
We believe SAP shares will outperform as investors see continued signs of revenue growth acceleration this year (as Oracle saw last year),...