Bernstein analysts began investigating SAP (SAPGF) on Thursday, citing the “right mix of revenue growth and margin improvement.”
The company’s positive attitude towards SAP is based on an extensive analysis combining their in-depth knowledge of software, cloud transitions and the European software and IT services sector.
Analysts’ statement underlines that SAP is an excellent investment opportunity within their coverage area, based on previous research in the industry and the Enterprise Resource Planning (ERP) market.
“We believe SAP can deliver double-digit revenue growth as well as improving margins (and potentially increasing returns on cash) thanks to the ERP market and SAP’s transition to the cloud,” analysts said in a note.
According to the note, this could result in a more than 2.5-fold increase in sales. In addition, SAP is expected to acquire new customers from the significant part of the ERP market that does not have a true cloud offering.
Cross-selling of SAP’s various Software as a Service (SaaS) products and greater monetization of the Business Technology Platform are also forecast 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 will be driven by a combination of: 1) operating leverage (similar to what we’ve 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.