Thursday 24 October 2013

Analysis of SAP

A German software and service company

Company: SAP

Business: A German software and software related services company that are dividing themselves into five units: Software, Support, Cloud, Consulting and Other services. The biggest revenue source is from Support with 51%.

Active: They are active in 188 countries and are servicing over 251,000 clients (which is companies and institutes).

P/E: 24.9

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of SAP it high with 24.9 and the P/B is in my eyes even worse with 5.0 which gives a very clear no from Graham. The earnings to sales are great with 17% and the ROE is also excellent with 20%. The book to debt ratio is fully acceptable with 1.1. In the last five years they have had a yearly growth of 7% which is great and this leads to a motivated P/E of 20 to 23 which means that SAP is currently fairly valued by the market. They spend a big bunch of money on research since it corresponds to almost 80% of their earnings. They pay a tiny dividend of 1.5% which represents 37% of their earnings so little risk of a decrease in the dividend payments.

Conclusion: The entire world is working with SAP and many people hate it which is mainly due to that they have not paid the full money to get the software completely customized. For me SAP is far to expensive today with a too high P/E, P/B and the dividend is tiny and for these reasons I see no justification to step in as a shareholder at the current moment.

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