Can Germany’s SAP distance itself from the 2022 tech crash?
11:42, 19 July 2022
SAP’s (SAP) share price has not fared well in what some describe as a repeat of the dotcom tech crash of 2000. The German software company’s share price has plummeted 29.60% year to date (YTD) and is down nearly 28% over the last six months.
It’s not the only company of course to be hit. Tech and growth stocks have been slammed by interest rate hikes (and the prospect of more to come) as well as other difficulties such as supply issues.
As a reflection of this, the tech-heavy Nasdaq Composite Index (US100) plunged more than 26% YTD back in May. As a recession looms, there’s also talk of the tech focused index seeing a further decline and bottoming under 9,000 by the end of the year.
But does SAP deserve to be part of this tech crash, given that it’s one of the world’s largest business enterprise software companies, which can boast that it has 99 of the 100 largest companies as its customers? As the company turns 50 this year (following its launch in 1972) we look at its prospects for 2022 and beyond.
What is your sentiment on US100?
SAP's share price has suffered following a tech crash
SAP attractiveness after a tech crash
SAPs stock has remained attractive for some. Back in March, Capital.com highlighted how the software company was one of the most traded equities on its platform.
While its services are niche, it’s not a company that should be underestimated. It offers applications, technology and support to small, medium and large businesses and its full year 2021 results show that its revenue is up 2% to €27.8bn ($31.5bn). Meanwhile its cloud subscriptions and support business saw an increase of 16% in year-on-year revenue to €9.4bn.
But there are questions over whether it can keep up with this momentum given the upcoming headwinds.
Russia exit impact
It's second quarter results for 2022 will be issued this week (21 July) and there are expectations that its planned withdrawal from Russia will have an impact on its future earning potential.
Dan Ridsdale, managing director and Head of TMT at Edison Group told Capital.com: “Management has been clear that €200m of the €350m of costs associated to Russia will hit Q2, but the market may not have fully digested this.”
Ridsdale added that investors’ commitment to SAP will depend on how they are prepared to look through the current headwinds and believe in the company’s long term strategic plans and ambitions.
Will the tech focused index bottom under 9,000 by year end?
Is there still value in SAP?
But Ridsdale maintains there’s still value to be gained from SAP. He pointed out: “With the business rated at a mid-teens PE multiple, SAP is valued at a significant discount to peers and to historical averages. Management is committed to delivering a return to double digit revenue growth by 2024 and for margins to start re-expanding from Q3 2023 onwards.”
But what about SAP’s past share price performance – should that still not have some sway on investment decisions? Ridsdale adds: “The share price performance over the past 12 months has not been out of kilter with many other large, enterprise software companies, but SAP’s valuation has come back from a lower initial starting point.
“The business' near term complications mean that there are certainly 'cleaner' investment stories out there, but if management executes on its medium to long term plan, the valuation upside potential looks attractive.”
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