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Financial Services Rebound Could Propel SAP’s ERP Software Business

SAP’s (NYSE:SAP) stock could see an improvement as a result of rising demand for Enterprise Resource Planning (ERP) software in the financial services sector.  SAP and its competitors Oracle (NYSE:ORCL), Microsoft (NASDAQ:MSFT), Infor and Sage have recently benefited from rising demand for IT services in the financial sector.  SAP’s ERP revenues improved significantly in the last quarter of 2009 due in part to the increase in revenue from SAP’s financial services customers.

We have updated the Trefis price estimate for SAP’s stock from $41.03 to $43.19 (versus market price of $42.77) based in part on the outlook for a stronger global ERP software market over our forecast period.

Below we highlight the significance of the ERP business for SAP and how growth in the financial services sector can lead to a stronger ERP market that would benefit SAP.

Enterprise Resource Planning Software 40% of SAP’s Value

We estimate that Enterprise Resource Planning (ERP) software constitutes about 40% of the Trefis price estimate for SAP’s stock.  ERP software is used by businesses to integrate separate data repositories and processes into one single system.

For example, a bank might use SAP’s ERP software to integrate the data from its a credit card business with that of its savings account business.  By doing so, the bank will be able to better find opportunities for cross-selling products (credit cards, savings accounts) to its existing customers.

SAP makes money by selling software licenses for its ERP software to businesses, and by providing support and maintenance services to its customers.

Financial Services Sector to Boost ERP Software Market

SAP’s ERP revenues for the last quarter of 2009 grew significantly, with the majority of the growth driven by the financial services sector.  SAP’s ERP revenues from financial services grew by 37% year on year, which includes growth of 46% in banking and 14% in insurance.  In comparison, SAP’s ERP revenue from the telecom and public sector rose by 21% and 14%, respectively.

SAP recently won a multi-year arrangement with Deutsche Bank to run its software for Deutsche’s core banking platform. SAP’s major customers in the financial services market include Achmea/Rabobank, Talanx, Credit Agricole and the National Australia Bank.

We believe a rebound in the financial services sector will drive demand for IT and that demand for ERP software will increase as a result.  We expect the Resource Planning Software market to grow from $21 billion in 2009 to nearly $34 billion by the end of Trefis forecast period.

You can modify our forecast here to see how SAP’s stock would be impacted if growth in the ERP market were to be higher than our forecast due to the improvement in the financial services sector.