SAP, Kleos Space, Software AG - Big growth predicted!

Kleos Space - Mission Part 3 launches

Founded in Australia and now headquartered in Luxembourg, Kleos Space, a data-as-a-service company, is valued by government agencies worldwide for providing independent, commercially available intelligence data that improves maritime and land safety. Private companies such as security services or insurance companies are also among the target audience, as Kleos Space detects and geolocates radio frequency transmissions from space to improve the identification of hidden and illegal activities.

The Company achieves this by using nanosatellites. These are launched into space in a pack of four per cluster to scan the Earth for radio frequency signals for geolocation. These are then processed using algorithms developed in-house to create data packets. The packets are delivered via API to government and commercial analytics and intelligence facilities worldwide and made available to decision-makers. Kleos Space is paid through a subscription model, ensuring recurring payments. As a result, the business becomes highly scalable. More than 160 customers from the public and private sectors have already been acquired, including 30 clients from the US government.

Two clusters of four satellites are already in orbit, with the third now scheduled to launch in April, where the satellites will be part of SpaceX's Transporter 4 mission. The fourth cluster, the Observer Mission (KSF3), is planned for June 2022. In the medium term, there should be around 20 clusters of Kleos Space in space to optimize data quality down to the smallest corner of the Earth.

Recently, Kleos Space received a contract for data analysis from Advanced Ground Information Systems. AGIS simultaneously processes up to 200,000 sensor messages in real-time to provide command, and control communications capabilities to the US military, government and emergency responders. The C5ISR (Command, Control, Communications, Computers, Cyber, Intelligence, Surveillance and Reconnaissance) system enables data interoperability between US and NATO C5ISR systems to create a common operational picture. Under the contract, AGIS will have access to Kleos' Guardian Locate data product for evaluation purposes.

Kleos Space is impressively on course for expansion and, with a market capitalization of AUD 116 million or the equivalent of around EUR 73 million, still has plenty of future potential. Kleos Space CEO Andy Bowyer will provide more detail on the Company's development at the International Investment Forum (IIF) www.ii-forum.com on February 17, 2022. Registration for the virtual event is free.

SAP - Significantly punished

Investors acknowledged the final figures for the past financial year and the forecasts for 2022 with sell-offs. At first glance, this is also justified. The Walldorf-based Company announced a free cash flow (FCF) target of EUR 4.5 billion for 2022, which was significantly below analysts' forecasts. In the previous year, an FCF of EUR 5.01 billion was achieved.

In the long term, despite the sell-off, it can nevertheless be seen that the cloud business, on which CEO Klein intends to focus, is gaining momentum. SAP aims to generate at least EUR 22 billion in cloud revenue by 2025. In the fourth quarter, growth here had accelerated to 28%. Cloud revenue for the year as a whole was almost EUR 10 billion.

Opinion was divided in the analyst camp. US investment bank Goldman Sachs lowered its price target for SAP from EUR 147 to EUR 139 after the figures but left its rating at "Buy". The experts at DZ Bank also lowered their price target from EUR 123 to EUR 115 and see a hold position in the software group. SAP looks back on a strong final quarter, but patience is required in the long term, wrote analyst Armin Kremser.

Software AG - Growth to increase

Software AG also wants to accelerate. In the current fiscal year, both product revenue is forecast to be 7% to 11% higher in constant currency compared to an increase of just 3% in 2021, and the group's adjusted operating margin (EBITA) is expected to improve 20% to 22%. The Darmstadt-based Company has also maintained its targets for 2023, which envisage an increase in Group sales, including services, to EUR 1 billion.

Similar to SAP, analysts are showing restraint. US bank JPMorgan lowered its price target for Software AG from EUR 45 to EUR 40 and left its rating at "Neutral." Warburg Research reiterated its "Hold" rating as well as its price target of EUR 38.

Data is the gold of the future. In terms of society's security, satellite-based systems are likely to play an increasingly important role. Kleos Space already has a broad customer base and should achieve significant scaling effects by expanding its clusters. The share price should also benefit significantly from this. With the cloud, SAP is also banking on a profitable business in the long term.