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07 Jan 2021
Low visibility into Q4 results, and into 2021
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Low visibility into Q4 results, and into 2021
SAP SE (SAP:ETR) | 0 0 0.0%
- Published:
07 Jan 2021 -
Author:
Slowinski Stefan SS | Castillo-Bernaus Ben BC -
Pages:
16
SAP''s strategic shift creates more questions than answers, for now
At its Q3 warning, SAP signalled that it expected software license sales to continue to collapse at ~20%+ / year instead of bouncing in 2021 on soft comps. SAP has suggested that, while customers are looking to move toward more subscription models, SAP will also look to push through this change. While we believe this may create an opportunity for an eventual cloud revenue growth acceleration, details on new cloud deployment and SAP support options, pricing and salesforce incentives remain scarce, creating low visibility in the near term.
Demand environment checks mixed. Licenses likely still under pressure
For their November quarters, Accenture reported an uptick in demand for its Intelligent Platform Services, including SAP, back to low single digit growth, but Oracle reported a return to software license declines. For their October quarters, Salesforce demonstrated continued strong demand with near 20% cRPO growth, but Workday''s outlook disappointed (just 7-8% seq RPO growth vs +15% typically) as cloud financials demand remains muted. Considering the added uncertainty around SAP''s delivery options, and ongoing reluctance from customers to commit to capex investments, we expect licenses to remain weak in Q4, as will transaction based cloud revenues.
We are below on revenues and above on op inc. in Q4 (29 Jan results)
A Q4 pre-announcement is possible. We are 4% below on cloud revs and 7% below on licenses (-25% y/y at c/c vs consensus at -21%). We are 1% above on adj op inc (100bps above on adj OMs) as COVID cost savings continue. Our 9% higher than consensus EPS is largely driven by a lower tax rate. We expect an FX headwind in H1''21, and our FY''21 numbers are 2.5% below on revs and 2% below on op inc. We model 2.5% c/c Software and Cloud growth (vs +2.9% for consensus).
Adjusting estimates and target price, mainly due to FX headwinds
Our EPS estimates fall by 3% as we...