War weighs on profitability but targets remain unchanged

SAP’s Q1 results were a mixed bag. While revenues were above consensus, profitability came in lower due to the impact of the Russia-Ukraine war. Nevertheless, the group reported better-than-expected momentum for its Cloud business. This was visible in the marked growth across all regions. The growth in S/4 HANA was also solid. Backed by these positives, the group is confident of making up for the negative impact from the war and confirmed its outlook.

Decent progress towards cloud transition

Throughout 2021, SAP continued to see an increasing shift towards cloud transition. The group’s ‘RISE with SAP’ programme continued to attract customers and S/4HANA showcased robust growth. These trends are expected to persist in 2022. Licensing revenues declined with a similar trend expected going forward. Operating profitability was lower than expected but the bottom line benefited from a strong contribution by Sapphire Ventures. The profitability target for 2022 is lower than expectations but

Q3 brings another increase in outlook

SAP, in Q3, built up on the traction seen in cloud transition in the previous quarter. SAP posted encouraging numbers as ‘Rise with SAP’ gathered further momentum and attracted new customers as well. S/4HANA also continued to attract customers as demand remained solid. Consequently, licence revenues declined. Similar to the previous quarter, the group once again raised its outlook up a notch. However, we see no monumental change to our estimates.

Acceleration of cloud transition

In Q2, SAP built on the good traction seen in its cloud transition through its Rise with SAP programme. This was visible in its current cloud backlog growth and cloud revenues. Licence revenues declined as expected. Good momentum was also seen in S/4 HANA and the group saw a general improvement in demand as reopening took place. After this release, the group raised its outlook albeit marginally. We will keep our recommendation unchanged.

Q1 21 is a qualitative positive

SAP’s Q1 numbers were very similar to Q1 FY20’s in terms of revenues but lower in terms of operating profits. A clear positive, though, was the good traction in the group’s cloud business which was evident from the group’s current cloud backlog and cloud revenues. While it is still too early to call on 2025 plan, these developments are a good omen that SAP will be able to handle the transition well and deliver on its medium-term targets.

A satisfactory Q4 result closes out FY20

SAP’s Q4 figures showed a sequential improvement. They also helped it to surpass its revised FY20 guidance for revenue and achieve the high-end of the range in operating margins. FCF generation in particular was a positive and some ways ahead of the guidance. The group also put forward its FY21 outlook and reiterated its FY25 ambitions. The transformation will take time.

Mediocre Q3 is only the beginning of the tough slog ahead

SAP’s Q3 results were average at best and missed our expectations. Consequently, the group not only lowered its FY20 guidance but also pushed its mid-term target out by two years from FY23 to FY25. These developments come as a result of two crucial mistakes: 1/being late to drive the push from licenses to cloud and 2/under-estimating how fast the transformation would occur, mostly aided by COVID. The result, a long road ahead to growth.

FCF target raised and further cash to come with Qualtrics IPO

SAP today posted its final Q2 figures, confirming the preliminary results reported last week. The company raised its operating cash flow and FCF expectations for the year. It also announced the listing of Qualtrics, which it acquired in November 2018, while keeping a majority stake in the company, which looks logical given the synergies between both. All in all, this is positive news.

A co-CEO leaving the ship

There were no major surprises in the figures compared to the pre-release in early April. The main surprise was the announcement regarding the departure of Jennifer Morgan, the co-CEO with Christian Klein, with the latter now taking over as sole CEO.

Poor new Cloud bookings

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.

CMD feedback

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.

Gaia-X: fiction or reality?

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

Equity story remains unchanged, though Q3 margin improved

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.

Patience has limits

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….

Good start to the year, brighter outlook

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.

LIBERUM: Bango* - Momentum building into H2

SP Angel Spec Sits: Innovative Eyewear IPOs on Nasdaq (TEK LN)

Lucyd's Innovative Eyewear completes IPO on Nasdaq on 14 August 2022 issuing 980,000 new units at US$7.50 per unit, raising a total of US$7.35m. Each unit consists of one share and two warrants immediately exercisable at the issue price (US$7.50) with a 5-year expiry. The shares began trading on Nasdaq on 15 August 2022 under the ticker LUCY, and the warrants under the ticker LUCYW.

Interim results update

National World reported interim results that were well ahead of our estimates and despite the challenging macroeconomic environment we maintain our FY22 estimates.

Hybridan Small Cap Feast 16/08/22

Joiners: No joiners today. Leavers: No leavers today. What’s cooking in the IPO kitchen?** Unigel Group, intends to join the Aquis Growth Market. Unigel Group is a pioneer in the field of thixotropic gels for the fibre optic cable industry. The Company is also a supplier of laminated steel tapes to the fibre optic cable industry in the US. Thixotropic gels and laminated steel tapes are essential components to the rapidly growing global fibre optic cable market. The Group exports to over 40 count

Morning Note – 16 August 2022

Interims: robust growth, unchanged outlook

Tribal has delivered a robust H1 – generating +10% ARR growth - further highlighting the company’s resilient business model and as well, its defensive end-market: uncorrelated to broader macro trends. Results also demonstrate continued execution of Tribal’s growth strategy; migrating its extensive customer base to the cloud, shown by further key upsells of Tribal:Cloud, and also; by winning new customers through its growing portfolio of cloud native (‘Tribal Edge’) products. Semestry for example

Hybridan Small Cap Feast 17/08/2022

Dish of the day Joiners: No joiners today. Leavers: Altus Strategies Plc has left AIM. What’s cooking in the IPO kitchen?** Unigel Group, intends to join the Aquis Growth Market. Unigel Group is a pioneer in the field of thixotropic gels for the fibre optic cable industry. The Company is also a supplier of laminated steel tapes to the fibre optic cable industry in the US. Thixotropic gels and laminated steel tapes are essential components to the rapidly growing global fibre optic cable market. T

Pipeline builds strongly

ESYS results were in-line with the March update, yet a newly reported strong contracted pipeline performance is the key takeaway from interims. H1 performance: revenues were resilient in a challenging macro environment, growing 3% y/y to £10.9m (+4% constant currency (‘cc’)). US revenues were up strongly (+20% y/y in $ terms), although as previously highlighted, this was offset by a lost customer in the UK due to CV19 occupancy headwinds. Challenges regarding sales team expansion and sales cycle

H1 ARR up 32% yoy - FY23 revs/profits on track

End July ARR has grown 32% c/c yoy to £5.2m (£4.5m for SwipedOn [SO] and £0.6m for Space Connect [SC]). H1 revenues for SO and SC are tracking in line, while A+K is tracking ahead. H1 net cash of £2.0m is slightly ahead. We make no changes to forecast revenues or profits, though note ARR has been impacted by a change in calculation methodology and some headwinds at SC. Overall, forecasts continue to be underpinned by upwards pricing reviews at SO, ramping sales of SwipedOn Desks, larger customer

H1 update – in line for FY

H1 revenues increased by a strong 39% to £27.6m, within which recurring software revenues increased by over 60% as management continues to focus on higher margin activities. Whilst wage inflation held back H1 profit growth as previously discussed, price increases will support H2. Market conditions in pharma R&D are robust, with demand for Instem’s solutions remaining high. Visibility for H2 has increased, meaning trading for the full year is reported to be in line with expectations. We make no c

Strong FY22 and FY23 visibility

Strong valuation currents

Microsoft Corporation: The Continuing Cloud Momentum, The Miburo Acquisition & Other Drivers, Financial Forecasts, DCF & Comparables Valuation, ESG & Other Risks (08/22)

Despite the massive size of its revenues, Microsoft has proven to be a remarkable story in terms of percentage-basis top-line growth over the past few years. Even in its most recent quarter, the company managed a double-digit top-line growth (around 12%) although it did fall short of Wall Street expectations in terms of both, revenues and earnings. The Microsoft Cloud achieved a quarterly revenue milestone of $25 billion for the first time, up 28% and 33% in constant currency. The company's bran

Nanoco Group - More good news – this time organic business

Nanoco has signed an agreement for a fifth work package from its major European customer. This covers the final phase of a scale-up of a longer wavelength material and development of a third material. It has also completed a placing and subscription raising £2.0m (net) at 37p/share, which extends the cash runway into CY24, and announced a broker option at 37p/share potentially raising up to an additional £3.7m.

Morning Note – 5 August 2022