• Q1 was much better than expected: Q1 22A marked the 6th consecutive quarter of improving EBITDA to USD 240mn, 25% ahead of our USD192mn (consensus: USD 195mn) and EPS of USD 0.20/share, 43% ahead of our USD 0.14/share (consensus: USD 0.12/share). Net debt was also better than expected, declining by 2% q/q to USD 1,917mn, with net debt/EBITDA of 2.8x (CRe: 3.2x).
  • Key highlights from the results: Europe EBIT was in the green (first time since Q2 20A), driven by graphic paper volumes at 99% of Q1 19A and pricing up over 20% y/y (benefiting from energy surcharge) outpacing cost inflation. North America printed a record Q1 EBITDA despite the USD 22mn EBITDA impact from the Somerset mill extended outage, which was offset by an extra trading week (Q1 22A: 14 weeks, last one was in Q1 17A), which helped lift EBITDA by USD 25mn. DWP volumes sold were 9% higher than our estimate, with both SA and North America exceeding expectations. However, no progress was made on the 100kt DWP backlog (we still have not included this in our estimates). Encouragingly, the average realised DWP price discount to CCF pricing narrowed to 6% (CRe), compared to 10% (CRe) in Q4 21A.
  • Changes to our EPS outlook: FY 22E +4% to USD 0.79/share (EBITDA USD 944mn); FY 23E: +1% to USD 0.42/share (EBITDA USD 707mn) and FY 24E: unchanged at USD 0.36/share (EBITDA USD 658mn).
  • Bullish outlook for Q2 and the rest of FY 22E: SAP has guided for a further sequential improvement in EBITDA in Q2 22E (CRe: USD 247mn, upgraded from USD 224mn), which could beat SAP’s current quarterly record EBITDA of USD 246mn in 2011. It is worth noting that the remaining quarters in FY 22E will all have 13 weeks of trading. FY 22E CapEx guidance remains unchanged at USD 395mn (Q1 22A: USD 72mn).
  • Maintain OVERWEIGHT and upgrade TP by 5% to R 88.41/share: SAP rallied 39% in 2021 and is up 19% YTD. SAP is currently trading on a 1-yr rolled forward EV/EBITDA (x) of 4.6x (5yr average 5.3x), with EBITDA set to increase by 77% this year.

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