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22 Jul 2022
FQ2''22 postview: de-risked by enough?
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FQ2''22 postview: de-risked by enough?
SAP SE (SAP:ETR) | 0 0 0.0%
- Published:
22 Jul 2022 -
Author:
Slowinski Stefan SS | Castillo-Bernaus Ben BC -
Pages:
23
On the face of it SAP''s Q2 print should have been a relief, but...
On the positive side SAP continues to see strong Cloud demand as evidenced by accelerating S4/HANA backlog growth to 87% ccy, while it also ''de-risked'' FY22 by cutting EBIT guidance. Despite this, we continue to see risks to FY FCF guidance, which has yet to be de-risked with Co. reiterating the FY target of EUR4.5bn despite coming in light at H1 with just EUR2.1bn and an unusually weak Q2 and talk of customers looking to pay less upfront. In addition SAP missed on adj. EBIT by 4%; the miss would have been double-digit were it not for notable cuts to Consensus estimates ahead of results, along with Russia costs coming in EUR40m below guidance. Conflicting messages about Software license sales feeling macro weakness and seeing longer sales cycles, but not Cloud sales, also creates concern that it is only a matter of time before Cloud CCB growth slows.
Risk of European weakness spreading globally?
Europe slowed notably in Q2; Germany grew just 6% (from 11% in Q1) while the rest of EMEA grew just 1% (from 4% in Q1). US and APAC fared better, though we note Qualtrics pointed out the softness in Europe in Q1 had spread further afield in Q2, particularly among larger deals and net new customer deals. SAP reiterated top-line guidance for FY22 and talked up mid-term targets (FY25) highlighting a review of these targets could come at the Q4 results, ''if'' the macro is unchanged at that point. That could lead to higher 2025 Cloud Revenue and EBIT targets. But that''s a big ''if''.
Cuts to License revenues and EBIT drive lower TP
We lower our License revenue estimates by 13% reflecting both accelerated shift to cloud but also softer new license sale environment. We also cut our Non-IFRS EBIT estimates by 6-10% (''22-''24), assuming an 8% decline y.y. in reported adj EBIT vs. Co. guidance of (1)-(5)% in EUR, or (4)-(8) in c/c. With FQ3 likely to be another weak profit quarter, creating Q4...