Europe’s largest software company SAP Ag (NYSE: SAP) reported an increase in the fiscal 2017 first-quarter net profit, compared to the similar period of 2016. The revenues also surpassed analysts’ estimates. The market responded positively to the results by pushing up the share price to a new one-year high of $106.98. Considering the strong growth in cloud bookings and impressive cash flow, we are bullish about the stock, which closed at $106.30 on Monday.
The German company reported total non-IFRS revenue of €5.285 billion in the fiscal 2017 first-quarter. This compares with €4.728 billion in the similar period last year. During 1Q 2017, Cloud and software revenue increased to €4.33 billion, from €3.85 billion in the year-ago quarter. The Street analysts had expected the company to report revenues of $5.179 billion.
During the March quarter, profit after tax (non-IFRS) increased 16% to €887 million, from €763 million in the corresponding quarter of 2016. On a per-share basis, earnings in the recent quarter increased to €0.73, from €0.64 in the quarter ended March 2016. Operating profit in 1Q17 was €1.198 billion, up 8% from €1.104 billion last year, but slightly lower than analysts’ estimates of €1.229 billion.
During the first quarter, new cloud subscriptions increased by 49% y-o-y and reached €215 million. Operating cash flow increased 16% y-o-y to €2.87 billion. Free cash flow was €2.58 billion, up 12% on a y-o-y basis. At the end of the March quarter, SAP had a net debt of €460 million, down €2.8 billion from the prior year’s first-quarter.
Considering the strong momentum in cloud business, SAP reiterated its fiscal 2017 non-IFRS cloud subscriptions and support revenue outlook of between €3.8 billion and €4 billion. Notably, the upper end of the guidance represents 34% y-o-y growth at constant currencies.
The company also stated that it continues to expect FY17 cloud & software revenue (non-IFRS) to grow by 6% to 8% at constant currencies. Finally, for fiscal 2017, SAP reconfirmed its non-IFRS operating profit guidance range of €6.8 billion to €7 billion at constant currencies.
Thus, considering the impressive growth of the cloud computing business, increase in operating cash flow, impressive decrease in net debt, and reconfirmation of FY17 operating profit, fundamentally, the stock is expected to remain bullish in the current quarter.
Technically, the price chart indicates strong support for the stock at 103.60. The rising money flow index indicates that investors are buying the stock. The ascending momentum indicator also confirms the bullishness in the stock. Thus, we can expect the stock to scale new heights in the week ahead.
To trade the probable uptrend, we are looking at the possibility of purchasing a call option valid for a week. Additionally, we would also look for a strike price of about $106 at the time of entering the trade.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
