SAP in free fall! RE Royalties soaring - and how is Bayer's turnaround progressing?

SAP – Why the market is skeptical despite strong figures

At the end of January, SAP shares experienced one of their worst daily falls in years. This was triggered by the fourth-quarter figures, which showed solid growth but fell short of investors' high expectations. In particular, the growth rate of the cloud backlog, a key indicator for future revenue, fell slightly short of forecasts. This moment illustrates the current market sentiment. Even robust operating performance is penalized if it does not perform in all areas.

Despite the short-term disappointment, SAP is consistently driving forward its strategic transformation. The business model is shifting from the sale of local licenses to cloud-based subscriptions. Initiatives such as "RISE with SAP" aim to guide customers from the outdated ECC system to the modern S/4HANA Cloud. A clear deadline for ECC support ending in 2027 creates a sense of urgency. At the same time, AI, such as the Copilot Joule, is being firmly integrated into the products and is already included in the majority of new contracts.

SAP continues to forecast strong cloud growth of 23-25% and rising operating income for 2026. Its operational strength is reflected in its explosive free cash flow, which is enabling a new share buyback program worth EUR 10 billion. For dividend-oriented investors, the conservative distribution policy with a payout ratio of at least 40% of earnings remains attractive. The future share price will depend on whether SAP succeeds in meeting its ambitious cloud revenue forecast and successfully converts the migration issue into orders. The share is currently trading at EUR 162.64.

RE Royalties – An exciting player in the energy transition

While the stock market revolves around AI and volatile commodity stocks, a business model with remarkable stability is growing in a niche of renewable energy. RE Royalties has transferred the royalty principle known from mining to solar, wind, and storage projects. Instead of building expensive plants, it finances developers and, in return, receives a percentage share of the long-term electricity revenues. This approach creates a revenue stream that is largely decoupled from stock market sentiment. The risks are clearly limited, as the financing is often secured by the physical assets, and the model relies on projects that are already operational. For investors looking for predictable cash flows outside the hype cycle, this niche is a compelling approach.

The current focus is on decentralized generation, such as small solar and storage projects for commercial and industrial use. A current example is financing of up to USD 9 million for a portfolio of 24 such plants in the US. These projects score points with lower regulatory risk and faster implementation than large-scale plants. The company deliberately diversifies across different technologies and regions, from North America to island states. At the same time, the pure battery storage market, driven by grid stability requirements and the booming electricity demand of data centers, already accounts for half of the portfolio. Both segments benefit from the economic rationale of reducing electricity costs and increasing security of supply.

The strategic task now is scaling. The challenge remains raising capital in a market environment that is not considered "sexy." Nevertheless, the project pipeline is filled with projects worth around CAD 50 million. One operational advantage is the scalability of the business model. Growing portfolio returns can be managed with a small team, which keeps the margin structure intact. The dividend policy was recently changed from quarterly to annual distributions to create more flexibility for growth investments. These are primarily financed by recycling repaid loans, creating a self-reinforcing cycle. At a current share price of CAD 0.315, the dividend yield is over 12%, provided the current distribution policy is maintained.

Bayer – The turnaround is gaining momentum

The first weeks of 2026 show that the long-awaited turnaround at Bayer is taking concrete shape. The momentum is clearly coming from the pharmaceuticals division. At the JPMorgan conference at the end of January, the company presented a robust pipeline. Despite the patent expiry of Xarelto, growth drivers such as the prostate cancer drug Nubeqa and the heart-kidney therapy Kerendia are providing strong impetus. The third approval for Nubeqa in China underscores this momentum. The current share price performance reflects this growing confidence.

Nevertheless, the legacy issues from the Monsanto era continue to weigh on the company. The glyphosate lawsuits remain a significant financial risk. However, a potential turning point is looming. The US Supreme Court will review a key case. A decision in favor of the company, expected in June, could block thousands of further lawsuits and finally create legal certainty. At the same time, the recent CHMP recommendation for Kerendia in heart failure shows that the pipeline continues to deliver important milestones.

The focus remains clearly on financial consolidation. The dividend has therefore been reduced to a symbolic minimum in order to reduce debt and invest in growth. No increase is expected for 2026. The strategic plan is clear. From 2027 onwards, the pharmaceutical business is expected to take off with mid-single-digit growth rates and operating margins to increase significantly by 2030. Whether this ambitious roadmap will succeed depends mainly on the continued success of the new drugs and a reduction in legal risks. For investors who are prepared to accompany this transition phase, patience could pay off in the long term. The share price is currently trading at EUR 45.705.

The current stock market shows divided dynamics. While SAP is failing despite its operational strength due to the relentless valuation for insufficiently high cloud growth forecasts, RE Royalties is demonstrating with its stable royalty model for renewable energy how predictable cash flows can be generated away from the hype. Bayer, on the other hand, is finally showing concrete signs of a turnaround in its pharmaceutical pipeline, but its development remains hampered by legacy issues related to glyphosate.