Wed. Jan 19th, 2022


SAP: a global power

Founded in 1972 and headquartered in Germany, SAP is one of the world’s largest providers of fully integrated enterprise resource planning (ERP) software, which includes finance, sales, accounting, human resources, and supply chain management. most importantly, 77% of global transactions reach an SAP system.

Since its launch in Australia on March 15, 2021, the Polen Capital Global Growth Fund has generated a return of 16.58% after all commissions up to July 31, 2021, surpassing its MSCI total net return index. ACWI 3.34%.

SAP (NYSE: SAP) is one of the world’s leading producers of business process management software and is currently in the portfolio of the Polen Capital Global Growth portfolio.

SAP is nothing but a global power. SAP has been a trusted brand for more than two-thirds of Forbes 2000 companies that rely on SAP software to run the world’s most critical processes. SAP has offices in 180 countries, has more than 425,000 customers, more than 40,000 companies, more than 100,000 employees.

The SAP product package once installed allows, for example, to communicate perfectly and immediately to the departments of Product Development and Supply Chain, the contributions of a vendor on a product with a low performance in CRM.

If agricultural machinery manufacturer John Deere wants to move from selling a simple tractor to an Internet-connected model, SAP products allow John Deere to sell a tractor with a guaranteed uptime of 100 along with a package of revenue services recurring. This is achieved by installing sensors linked to Deere’s SAP ERP software. John Deere is informed in advance of the necessary repairs and the temporary application of SAP labor (FieldGlass) programs the necessary workers, informs the customer and coordinates the supply chain to supply the necessary parts.

SAP’s seamlessly integrated application and service suites enable half a million business and public customers to operate profitably, continually adapt, and make a difference.

Barriers to entry

SAP’s economic and business pitfall, the barrier to entry that protects it, is a business model with high switching costs and its global scale. This gap, along with the advent of cloud computing, annually produces 70% (and grows) of recurring revenue and a single-digit average price.

As an example, of the consolidated and high switching costs, once Nestle installs the SAP ERP, it becomes the vital axis of Nestle. If SAP stops working, so does Nestle. A highly customized solution means that switching vendors is similar to starting home plumbing while trying to make the home work completely. SAP enjoys the benefits of some of the highest switching costs we have identified around the world.

Of course, once SAP is installed, cross-selling and / or selling additional software, including CRM, sourcing, customer experience, data analytics, at low prices (but super high margins for SAP) is a decision. relatively simple for the customer. SAP has demonstrated this dynamic for decades.

A global army of sales professionals, research and development engineers, and a global ecosystem of third-party consultants, such as Accenture, help sell, implement, and customize SAP products.

The growth track also remains long. The industry is experiencing high single-digit growth. Enterprise resource planning software alone accounts for a market of more than US $ 75 billion, and with a 27% share of SAP and its largest rival Oracle (a market share of 21%), it has a lower total share at 50% of the total addressable market.

Meanwhile, the growing ubiquity of technology and its growing importance and need in companies demanding increasing customization ensure a lasting offering for SAP.

The COVID-19 pandemic has demonstrated the resilience of SAP and the Polen team hopes this will continue in the future, as its customers see the value of a modern ERP solution and have the urgency to “do or die” for to digitally transform into a smart company.

An investment in SAP provides exposure to a company with a powerful combination of a fast-growing cloud business and a solid set of solutions. Polen expects the beneficial upgrade cycle and the transition to the cloud to improve margins and generate an even higher share of predictable revenue.

The company has an attractive value and given the high switching costs and the fundamental nature of the mission of its services, SAP is a stock that continues to show strong security-like features.

You can learn more about Polen’s view on why software as a service (SaaS) companies can offer the benefits of typical recession-resistant companies, but with potentially more sustainable growth in this recent white paper.

For more information on the Polen Capital Global Growth Fund, visit the fund’s website:

The Polen Capital Global Growth Fund has shares in SAP. This article was prepared on August 23, 2021 with the information we have today and our vision may change. It does not constitute formal advice or professional advice on investments. If you want to change SAP, you will need to seek financial advice.


Roger is the founder and investment director of Montgomery Investment Management. Roger brings more than two decades of experience, knowledge and relationships in the financial and investment market in his role as investment director. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

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