Lex: SAP

If form follows function, SAP is in top shape. True to form, it has once again beaten forecasts. That increases comfort that it can further strengthen its position as enterprise software moves towards a more service-based architecture.

Unlike arch-rival Oracle, SAP already offers a compelling vision of how to get there. It argues that the challenge is to help companies adapt and innovate business processes, rather than just trying to put all data on the same databases.

SAP is also starting to reap the benefits from embracing web services fairly early on. The weakness in Germany mainly appears to reflect uncertainty ahead of the looming elections, especially among public sector and financial clients. That augurs well for the second half. The rest of Europe already seems to be experiencing a long-awaited recovery, reducing SAP's dependence on growth in the US. Not that it is running out of steam across the Atlantic. Despite aggressive discounting by several rivals, SAP's claims that it has continued to gain market share are credible. Oracle will no doubt fight back as it digests recent acquisitions, but could face an uphill struggle.

The snag is that SAP's shares will need more than just another round of forecast-beating to regain momentum. To be sure, SAP's guidance looks even more cautious than usual. But, with the shares already trading at 30 times this year's earnings, it is hard to see them extending their premium to peers further, let alone generating any absolute returns.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.