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SAP AG 03 July 2008

Update Report – 1Q 08 Results

Inorganic initiatives coupled with new contract driving growth

Common BUY Fundamental research indicates a 23% upside in the common stock over the next 6-24 months. We
Direct access
have calculated theto theprice
target fullbased
report free of charge
on fundamental at a weighted average of target
factors, using
Stock prices obtained through DCF and comparative valuation methodologies.
http://www.iirgroup.com/researchoracle/viewreport/show/20189
Ticker: SAPG.DE
Target price: €40.00 We reiterate the common stock a BUY with a 6-24 month target price of €40.00.
Current price: €32.60

ADR HOLD The ADR is expected to appreciate approximately 5% over the next 6-24 months as the 23 percent
fundamental upside is offset by approximately 18 percentage points downside attributable to the
anticipated depreciation of the euro against the US dollar over the same period.
Ticker: SAP
Target price: US$54.00 We downgrade the ADR (1 ADR= 1 common share) a BUY to a HOLD with a 6-24 month target price of
Current price: US$51.40 US$54.00.

Supervisor: Meera Patil Investment horizon- short term actionable trading strategies
Analyst: Namrata Chheda
This report addresses the needs of strategic investors with a long-term investment horizon of 6-24 months. If
Editor: Shem Pennant this report is provided to you by your broker under the Global Settlement, you may now also access (free of
Global Research Director: charge) the short-term trading outlook that we publish from time to time for this issuer, looking at the coming
Satish Betadpur, CFA 5-30 days for readers with a shorter trading horizon. These are available on-line only at
www.researchoracle.com
Next news due:
2Q 08 results, mid-August 2008
Report summary
SAP AG (SAP) witnessed double-digit revenue growth in both its major segments, Software and
software related services and Professional services and other services. However, top-line for the
quarter remained marginally below our and market expectations. On a yearly basis SAP observed a
decline in operating margin, mainly on account post acquisition consolidation of Business Objects,
which operated at significantly lower margins compared to SAP on a standalone basis. Going forward,
SAP will generate cost synergies from the integration apart from margin improvements led by plans to
reduce investments previously planned for its mid-market strategy, reflected in the upwardly revised
operating margin Management guidance. Led by lower operating level performance, SAP’s 1Q 08 net
income declined y-o-y. During the quarter, the company announced SAP and Business Object’s first
joint offering. SAP also won many major contracts in 1Q 08, along with extended partnership deals,
improving its future revenue stream. With Business Object’s hold in the mid-market segment, SAP is
undertaking efforts to strengthen its portfolio. SAP’s strategy for its Small and Medium Enterprises
(SME) portfolio rollout and efforts to launch user-friendly products will be key top-line drivers, going
forward. Based on these factors, our outlook for the company remains positive and we continue to
view the SAP common stock as an attractive investment opportunity at current levels.

Currency impact for US investors

The impact by itself of the anticipated currency movements on the ADR (now US$51.40), without
considering changes in the share price, is broadly negative and is expected to be:

Over 6 months: US$54.77

Over 12 months: US$48.90
Over 24 months: US$44.01

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