SAP Cloud Promotions leaves its shares in the gutter

LONDON, Oct 13 (Reuters Breakingviews) – Christian Klein’s strategy for SAP (SAPG.DE), a 145 billion euro software company, appears to be working, but investors aren’t giving him credit. The chief executive wants so-called cloud revenue, which means sales from IT products that are hosted remotely rather than on local servers, to reach 22 billion euros by 2025. An ad-hoc market update on Wednesday, which pushed the share price up 4.6%, showed it was on track. Cloud sales increased 20% as corporate customers bought more of its subscription software; That’s roughly the pace at which revenue growth is needed to achieve Klein’s 2025 goal.

But shares are still lower than they were last October, before Klein released its five-year plan. And investors don’t value SAP like a fast-growing cloud specialist. US rivals Salesforce.com (CRM.N), Workday (WDAY.O) and ServiceNow (NOW.N) trade on average 20 times 2025 revenue. Apply the same multiplier to Klein’s targeted 22 billion euros of cloud sales, and that division alone should be valued at 447 billion euros including debt – nearly three times SAP’s total enterprise value. Klein has won over customers but not yet investors. (by Liam Proud)

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Editing by Neil Unmack and Karen Kwok