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Technology Stocks : SAP A.G. -- Ignore unavailable to you. Want to Upgrade?

To: DownSouth who wrote (1849)	7/31/1998 8:11:00 AM
From: JJ	Read Replies (1) \| Respond to of 3424

To All: These two items should answer some of the research questions posed lately.............. Research link at Lehman Bros. : (need Adobe Acrobat to read) lehman.com Story from today's WSJ interactive edition, link here and story pasted down below. interactive.wsj.com Heard on the Street Germany's SAP to Make Debut On New York Stock Exchange By MATTHEW ROSE and SUZANNE MCGEE Staff Reporters of THE WALL STREET JOURNAL LONDON -- It will be one of the largest software stocks on the New York Stock Exchange when its American depositary receipts start trading on the Big Board Monday. Yet with a stock-market value topping $70 billion, Germany's SAP ishardly a household name. Though its market capitalization is only about a quarter of Microsoft's -- the signature stock of the Nasdaq Stock Market -- SAP is still a leader in one of the hottest software sectors around, enterprise software, where its market share is more than four times that of competitors Oracle, PeopleSoft and Baan. And while some of its rivals ar stumbling, SAP posted sales growth of 60% in the first half of this year. Multinational companies from IBM, Colgate-Palmolive, and Nestle have installed SAP's software, which is used to integrate and process information on distribution, finance, human resources and other areas. "You can't talk to a large institution in the U.S. without hearing about the love affair they have with SAP's product," says Jerry Castellini, a money manager in Loomis Sayles's Chicago office. Although SAP's shift to U.S. from German accounting standards in 1999 is likely to wipe 5% to 6% off its sales, the company views the listing as a tool to raise visibility in the U.S. But such visibility cuts two ways. Investors already cringe at SAP's stratospheric valuation: the stock now trades at a stunning 89 times estimated 1998 earnings, according to IBES International, well above an enterprise-software industry average of 61 times. The company's stock has already gained 69% from its low earlier this year, and is up more than 30-fold over the last five years. European investors may be willing to swallow such anxieties, faced with a relative dearth locally of high-powered tech stocks. But it may be harder to sell the story to U.S. investors who have seen high flyers from Computer Associates to Cendant brought down lately by earnings shocks and accounting surprises. Even the most bullish analysts concede there's risk in SAP stock. The company's recent second-quarter earnings included some negative surprises -- including lower profits from Asia and rapidly rising costs caused by a hiring spree and new employee-incentive program -- that knocked the stock down 5%. It has since more than regained the lost ground. SAP shares rose 68 marks ($38), or 5.7%, to close at 1,268 marks in Frankfurt trading Thursday amid anticipation of the listing-related hoopla next week. But Marc Klee, co-manager of the John Hancock Global Technology fund, says, "At this multiple, any kind of slowdown in demand could be dangerous to the stock." Some analysts and money managers argue that SAP warrants the type of valuation accorded other dominant players, such as Microsoft or Cisco Systems. SAP has a research budget bigger than the revenues of its nearest competitors, allowing it to spend its way through any slowdown. The company is also buoyed by a vast support industry. Hardware giants such as Compaq Computer, for example, derive significant proportions of their profits from selling products linked to SAP's software. SAP looks better by one alternative yardstick, the ratio of price per share to sales per share. SAP trades at around 12 times sales over the last 12 months, compared with 20 times for Microsoft, according to Morgan Stanley Dean Witter. Some industry watchers consider SAP's cochairman and co-founder Hasso Plattner, 54 years old, the Bill Gates of Europe. Charles Elliot, an analyst at Goldman Sachs, uses a yardstick comparing price/earnings ratio with the long-term sales growth rate, or PEG. SAP's PEG ratio of 2.3 is much higher than other enterprise-software companies, which trade around 1.1. But Mr. Elliott notes that other enterprise-software companies that don't compete with SAP -- including Computer Associates, i2 Technologies, LHS, Manugistics, Microsoft and Pegasystems -- have the same average PEG ratio. "As long as earnings can rise to justify the share price, we recommend buying," he says. William Farrell, a technology analyst with Morgan Stanley Dean Witter, says, "The point about SAP is that we are convinced it is going to be around for a long time." Regards, --JJ