SAP's Strong 9-Month Results Indicate 40% Sales Rise for Year
By ANGELA CULLEN
Dow Jones Newswires
FRANKFURT -- Better-than-expected nine-month earnings Friday will give German software maker SAP AG the breathing space it needs to fold in an expected slack fourth quarter and still uphold its original forecast of 40% sales growth and 30%-to-35% profit growth in 1998.
Analysts were pleasantly surprised by the preliminary data, which indicated a rise in nine-month sales of 54% to 5.88 billion marks ($3.60 billion), from 3.8 billion marks for the same period in 1997.
SAP said Friday third-quarter net profit growth was "slightly better" than the 43% increase in sales for the period July to September, matching the high end of analysts' expectations.
Friday's market welcomed the data by buying into the software stock, which pushed its share price up 50 marks, or 8.1%, to 669 marks at midday.
Weaker Fourth-Quarter Ahead
Market observers say the strong nine-month data will more than compensate for a weaker fourth quarter, when unfavorable exchange-rate effects, which only intensified towards the end of the third quarter, are expected to really take hold.
"Now they have some room to maneuver," said Bankgesellschaft Berlin's Hans Huff, adding that he expects pretax profit to grow by only around 28% in the final quarter.
However, analysts will scrutinize SAP's third-quarter cost situation when the software maker publishes official nine-month figures on Oct. 20, after it revealed Friday that costs rose more than 43%, including the reserves it set aside for its employee stock option Star program.
"We know that Japan has been a problem," Mr. Huff said, "But we don't know the exact nature of all the costs."
Analysts also expected demand for SAP's Year 2000 software to start slowing in the third quarter given its lengthy installation period, which is estimated at about 18 months for major projects.
Solutions to the millennium problem are central to SAP's dramatic growth over the past few years.
Also not clear from Friday's preliminary data is how much reserves SAP had to set aside in the third quarter for the Star program, analysts said. Some suggest that costs related to the program were much lower this period than originally expected and that this may be one reason for SAP's profit growth.
Weak Stock, Less Star Costs
SAP set aside 35 million marks for Star in the period April to June. By contrast, some analysts estimate SAP put aside as little as 5 million marks in the third quarter.
The company's battered share price in recent months translates into less costs for Star since the stock option is linked to a base share price of 785 marks. Because SAP's share price has traded well below that level this period, employees can't even cash in the options, analysts explained.
Because all these questions remain unanswered, Bank Berlin's Huff, for one, is eager to get clearer cost details from SAP. The analyst said he would use such details to decipher indications of SAP's future growth potential.
Despite SAP's share price losing almost 50% of its market capitalization in the recent stock market tumble, analysts still maintain their outperformer ratings, claiming that fundamentally the company's house is very much in order.
SAP has invested heavily in personnel in 1998. In addition, "its high customer base gives it a very good launching pad for spinning off new products," said Mr. Huff. |
