SAP, Oracle And...Who? by Mark Veverka
Summary: The action in enterprise software has moved to the middle-market, serving customers with anywhere from $250 million to $1 billion in annual revenues. Little-known Lawson Software (LWSN) is the #3 publicly held enterprise resource-planning vendor in the world (behind Oracle Corp. (ORCL) and SAP AG ADR (SAP)), but its $1.6 billion market cap is dwarfed by SAP's $60 billion. Since 1975 Lawson has sold resource-planning software, which is used to automate business procedures, to the cost conscious middle-market, who can't afford the expensive training necessary to maintain Oracle's and SAP's more complex packages. Lawson's total cost of ownership, a metric used to assess both direct and indirect costs of software, is 33% of that of Oracle's and 25% of SAP's. Its $460 million 2006 acquisition of Swedish Intentia extended its reach into Europe, brought it Intentia's expertise in the manufacturing sector (previously untapped by Lawson), bolstered its sales force by 25% and doubled its customer base. Operating margins have benefited from the merger: they're up from 3% in Q1 to 9% in Q3, should hit 15% by the end of 2008, and ultimately 17-19%. Cowen analyst Peter Goldmacher says organic growth and cost efficiencies should see the company beating-and-raising for the next five quarters, minimum. Consensus EPS estimates for F07 are $0.16, and $0.33 F08. Shares, about $9, up from a 52-week low of $5.39 last July, trade at about 2x annual sales, vs. 4x for SAP and 5x for Oracle. Goldmacher says they still have a ways to go; his target is $14.
Earnings call transcript: Lawson Software F2Q07