SAP shares surge as it upgrades 2019 outlook

SAP has increased its full-year outlook and pledged to improve margins following a bumper first quarter, as it emerged that US activist investor Elliot had taken a stake in the German firm.

Total revenues at the software company – Europe’s largest – came in €6.09bn, for a 16% increase on the first three months of 2018. In it's fast-growing cloud division, revenue surged 45% to €1.55bn, the first time it has exceed €1.5bn in a quarter.

The operating loss was €136m against last year’s profit of €1.03bn because of previously announced restructuring and acquisition costs. On a non-IFRS basis, operating profits rose 19% to €1.47bn.

SAP's 2019 outlook for non-IFRS operating profit is now in the range of €7.85bn to €8.05bn at constant currencies against 2018’s €7.16bn. Total revenues are expected “to increase strongly” though at a rate lower than operating profit.

SAP also said it would seek to more than triple cloud revenue by 2023 and increase operating margin by one percentage point per year on average.

Bill McDermott, chief executive, said: “We have a strong core business, the fastest growing cloud at scale in enterprise software and impressive non-IFRS operating profit growth. We are focused on leading a best-run SAP, so we can drive significant margin expansion in the quarters ahead.”

Chief financial officer Luka Mucic added: “Non-IFRS operating profits growth saw the biggest improvement in more than three years, with both cloud gross margin and operating margin beating our expectations. This gives us the confidence to further extend our commitment to mid-term margin improvements and stronger shareholder returns.”

According to Reuters, Elliot has amassed the equivalent of 1% stake in SAP.

In a statement, Elliot’s Jesse Cohn and Jason Genrich said they supported the management, adding: “The company’s shares were clearly undervalued in relation to its revenue growth, and today’s announcement lays the foundation for substantial realisation of value.”

The market welcomed the update and by 1145 BST the shares were trading 9% higher in Frankfurt.