Fixed Income Analysis /

Credit Comment - SAP: Higher FCF for FY20 and the expected Qualtrics IPO mitigate a soft 2021 outlook

    Gianfranco Arcovito
    Gianfranco Arcovito

    CFA - Utilities, Hybrids

    15 January 2021
    Published byUniCredit
    • Event: This morning, SAP released stronger-than-expected preliminary 4Q20 figures that confirm the business transformation trend the company has been experiencing in the last few years, driven by the expansion of cloud-based services. Apart from the good operational performance, we note that FY20 cash generation was particularly strong and well above the company’s guidance, although the forecast for operating profit in FY21 seems a tad soft. The press release can be found here.
    • Expected development of credit profile: At the time of publication of its 3Q20 results in October, SAP revised down its FY20 and medium-term guidance it reported that customers, especially those operating in hard-hit industries, continued to experience the effect of the COVID-19 pandemic and restrictions, which created business uncertainty and higher scrutiny for larger projects. This release led to a share sell-off of more than 20%, although credit spreads remained more resilient and widened by 2-4bp but recovered in the following few days.
    • Despite the implications from the COVID-19 crisis, as explained in the outlook below, we believe that the long-term growth opportunities remain unchanged, as underpinned by megatrends. We expect cloud growth (in both PaaS and SaaS) to be sustained by SAP’s HANA platform and its new software solutions that are replacing traditional ERP and CRM software and are based on in-memory database technology, which allows for faster analytics of large amounts of data – a trend we believe will become more important going forward.