Bernstein starts SAP at Buy on ‘right mix of revenue growth and margin improvement’

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Bernstein starts SAP at Buy on ‘right mix of revenue growth and margin improvement’
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Bernstein analysts on Thursday started research coverage on SAP (SAPGF), citing the “right mix of revenue growth and margin improvement.”

The firm’s bullishness for SAP is based on an extensive analysis combining their deep knowledge of software, Cloud transitions, and the European software and IT services sector.

Analysts’ thesis underlines SAP as a prime investment opportunity within their coverage area, drawing from previous research on the industry and the Enterprise Resource Planning (ERP) market.

“We believe that SAP can deliver both double-digit revenue growth plus improving margins (and possibly an increasing return of cash) driven by the ERP market and SAP’s transition to the Cloud,” analysts said in a note.

This, according to the note, could result in more than a 2.5-fold increase in revenue. Moreover, SAP is expected to gain new customers from the substantial portion of the ERP market that lacks a true Cloud offering.

Cross-selling of SAP's various Software as a Service (SaaS) products and increased monetization of the Business Technology Platform are also predicted to contribute to revenue growth. Furthermore, the potential sale of SAP Fiori AI capabilities and modules is seen as an additional opportunity for the company.

“Margin improvement is going to be driven by a combination of: 1) operating leverage (similar to what we have seen at Microsoft); 2) increased operational efficiency; and 3) a mix shift to fewer services and within those services a shift to higher margin services,” Bernstein concluded.

SAP shares rose 1.5% in European trading.

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