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Vermilion Energy — Q2 FFO in line; oil price upgrade drives valuation

Vermilion Energy — Q2 FFO in line; oil price upgrade drives valuation

Vermilion Energy (VET) reported Q2 fund flows from operations (FFO) of C$193m, in line with consensus estimates and a 23% increase q-o-q. The acquisition of Spartan drove a 15% q-o-q increase in production to 80.6kboed, c 1% ahead of consensus, which includes volumes from Spartan after close of the C$1.4bn acquisition on 28 May 2018. We increase our expectations for FY18 FFO from C$887m to C$946m (+7%) and FY19 FFO from C$1,104m to C$1,208m (+9%), reflecting higher oil price expectations for H218 and 2019. We use EIA short-term WTI price projections of US$66/bbl in 2018 and US$62/bbl in 2019. Our valuation increases from C$53.8/share to C$57.9/share as a result.

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Written by

Vermilion Energy

Q2 FFO in line; oil price upgrade drives valuation

Q2 results

Oil & gas

31 July 2018

Price

C$44.78

Market cap

C$6807m

US$/C$1.29

Net debt (C$bn) at 30 June 2018

1.8

Shares in issue

152m

Free float

94%

Code

VET

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

(5.6)

3.2

7.2

Rel (local)

(5.9)

(1.5)

(0.8)

52-week high/low

C$50.1

C$38.5

Business description

Vermilion Energy is an international E&P with assets in Europe, North America and Australia. Management expects FY18 production to average 86-90kboed after incorporating the acquisition of Spartan.

Next events

Q3 results

24 October 2018

Analysts

Sanjeev Bahl

+44 (0)20 3077 5742

Carlos Gomes

+44 (0)20 3077 5722

Vermilion Energy is a research client of Edison Investment Research Limited

Vermilion Energy (VET) reported Q2 fund flows from operations (FFO) of C$193m, in line with consensus estimates and a 23% increase q-o-q. The acquisition of Spartan drove a 15% q-o-q increase in production to 80.6kboed, c 1% ahead of consensus, which includes volumes from Spartan after close of the C$1.4bn acquisition on 28 May 2018. We increase our expectations for FY18 FFO from C$887m to C$946m (+7%) and FY19 FFO from C$1,104m to C$1,208m (+9%), reflecting higher oil price expectations for H218 and 2019. We use EIA short-term WTI price projections of US$66/bbl in 2018 and US$62/bbl in 2019. Our valuation increases from C$53.8/share to C$57.9/share as a result.

Year end

Revenue
(C$m)

EBITDA*
(C$m)

Operating cash flow (C$m)

Net (debt)/
cash** (C$m)

Capex ex
acquisitions (C$m)

Yield
(%)

12/16

828.5

361.7

509.5

(1,298.9)

(242.4)

5.8

12/17

1,024.4

673.0

593.9

(1,223.8)

(320.4)

5.8

12/18e

1,558.0

812.6

850.6

(1,484.0)

(502.3)

6.0

12/19e

1,920.3

1,174.6

1,150.7

(1,205.5)

(563.2)

6.3

Note: *Reported EBITDA includes hedging and FX gains/losses. **Net debt = long-term debt, short-term debt minus cash and equivalents.

Capex and dividend funded from FFO

Vermilion’s FY18 production guidance OF 86-90kboed range (Edison 88.4kboed) remains unchanged. Capex guidance has increased from C$430m to C$500m, driven by the acceleration of drilling in Australia, taking advantage of rig availability, and to a lesser extent foreign exchange rates. VET’s dividend and capex programme remain fully funded for FY18 and FY19 based on our forecasts. With total debt to EBITDA of 1.7x and more than C$370m in unutilised debt capacity, liquidity is not a concern.

Spartan synergies to be realised over time

Management expects Spartan synergies to evolve over time, driving down unit opex at Vermilion’s largest producing business unit, Canada. Operating costs rose 7% to C$9.04/boe in Q218 (including a one-month contribution from Spartan), but management expects to see immediate synergies from items such as marketing, insurance and G&A, with a more material reduction of C$2-3/boe to be realised over time.

Blended valuation: 8% increase driven by oil price

Our valuation methodology is outlined in further detail in our recent initiation note and uses a combination of P/CF, EV/EBIDAX, Gordon’s growth model and SOTP based on sustainable FCF and drilling inventory NPV10. The key driver of an increase in our valuation to C$57.9/share is our revised FY19 WTI price assumption, which rises by 6% from US$58.7/bbl to US$62/bbl. The valuation remains highly sensitive to underlying commodity price assumptions despite hedging.

Operational highlights

At group level, production grew 20% y-o-y, largely driven by the acquisition of Spartan, offsetting declines in Germany, Ireland, Australia and the US. Production declines in these regions were driven by natural decline, but also by operational outages and delays. Management remains confident in full year guidance of 86-90kboed, which remains unchanged and targets an exit run rate of 100kboed.

Capex forecasts for FY18 have risen from C$430m to C$500m, reflecting the acceleration (from 2019 into Q418) of drilling in Australia where management is looking to take advantage of available rig slots, and to a lesser extent foreign exchange rate fluctuations.

Exhibit 1: Operational performance review

Country

Production
(kboed)

Growth y-o-y

Growth q-o-q

Context

Canada

43.8

53%

37%

Acquisition of Spartan and benefited from drilling activity in Q118.

France

11.7

3%

6%

Production additions from the Neocomian and Champotran drilling programme, as well as reduced downtime.

Netherlands

7.3

37%

-3%

Shut-in of Eesveen-02 well following production test. Well expected back on stream in August 2018 after permitting.

Germany

3.4

-21%

-9%

Downtime at non-op sour gas plant. Two-thirds of volumes not expected back online until late in Q3.

Ireland

9.4

-11%

-7%

Natural declines and minor plant downtime.

Australia

4.1

-32%

-17%

Higher than normal downtime to perform workovers.

US

0.8

-13%

27%

Natural declines and production delays led to a y-o-y decline. Net wells and resumption of gas sales following restart of third-party gas facility drove growth q-o-q.

Total

80.6

20%

15%

Source: Vermilion Energy, Edison Investment Research

Valuation benefits from higher realisations

Below we provide an update of our blended valuation for Vermilion based on higher short-term crude realisations. Our FY18 and FY19 oil price assumptions are based on EIA projections, which currently stand at US$66/bbl in 2018 and US$62/bbl in 2019.

We would expect Vermilion to trade towards the top end of our C$44.3/share to C$57.9/share valuation range based on its track record of reserves and production growth, peer-leading dividend yield, low F&D costs, and commitment to emission disclosure and reduction. We note that valuation sensitivity to underlying commodity price assumptions remains high, despite hedge protection, as shown in Exhibit 3 below.

Exhibit 2: Valuation range C$44.3-57.9/share

Exhibit 3: Valuation sensitivity to commodity price FY19e

Source: Edison Investment Research. Note: Ke = required rate of return.

Source: Edison Investment Research

Exhibit 2: Valuation range C$44.3-57.9/share

Source: Edison Investment Research. Note: Ke = required rate of return.

Exhibit 3: Valuation sensitivity to commodity price FY19e

Source: Edison Investment Research

Commodity price leverage and valuation

Benchmark commodity prices for FY19 are a key sensitivity to our group valuation. Exhibit 4 below indicates this sensitivity by flexing our commodity price inputs for 2019 by ±30%. Our valuation varies from C$36.7/share to C$79.4/share over this range, with the market-implied discount to our commodity price deck for 2019 at c -12%.

Exhibit 4: Midpoint valuation sensitivity to commodity price input for FY19 (base case in bold)

Brent/(US$/bbl)

48.1

55.0

61.9

68.7

75.6

82.5

89.4

WTI/(US$/bbl)

43.4

49.6

55.8

62.0

68.2

74.4

80.7

NBP (C$/mmbtu)

4.9

5.6

6.3

7.0

7.7

8.4

9.1

AECO (C$/GJ)

1.2

1.4

1.5

1.7

1.9

2.0

2.2

TTF (C$/GJ)

4.9

5.6

6.3

7

7.7

8.4

9.1

Price change versus base

-30%

-20%

-10%

0%

10%

20%

30%

C$/share

36.7

43.6

50.6

57.9

65.4

72.5

79.4

Source: Edison Investment Research

Financials

Edison versus consensus

Our updated forecasts relative to company and Bloomberg consensus are shown in the table below. Key variations include our production expectations for FY19, which are 7% ahead of consensus, reflecting a full year contribution from Spartan and increase in equity at Corrib (Ireland) post the transition of operatorship to Vermilion, an increase in production from the Netherlands on the resolution of permitting issues and the positive impact of two new wells in Australia offsetting production declines. We expect to revisit our production forecasts towards the end of FY18 when we have more information on production from the acquired Spartan asset base.

Exhibit 5: Edison forecast versus Bloomberg consensus

C$m

Edison

Consensus

Delta

2018e

2019e

2018e

2019e

2018e

2019e

Production

88.4

108

86.8

100.9

2%

7%

Revenues

1,558

1,920

1,578

1,881

-1%

2%

Adj EBITDA*

843

1,206

983

1,202

-14%

0%

EBIDAX

805

1,148

N/A

N/A

 

 

FFO

946

1,208

940**

N/A

1% 

 

CFPS

5.5

7.3

6.5

7.7

-15%

-5%

Capex ex acquisitions

502

563

500***

518

0%

9%

Source: Edison Investment Research, Bloomberg. Note: *Adjusted for non-cash items. **Company consensus. ***Company guidance.

Exhibit 6: Financial summary

 

 

C$m

2016

2017

2018e

2019e

2020e

Dec

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

Revenue

 

 

829

1,024

1,558

1,920

2,064

Cost of Sales

 

(262)

(286)

(454)

(594)

(625)

Gross Profit

 

567

739

1,104

1,327

1,439

EBITDA

 

 

362

673

813

1,175

1,287

Operating Profit (before amort. and except.)

(166)

182

166

364

457

Intangible Amortisation

0

0

0

0

0

Exceptionals

 

0

0

0

0

0

Other

 

 

0

0

0

0

0

Operating Profit

 

(166)

182

166

364

457

Net Interest

 

 

(57)

(57)

(62)

(58)

(44)

Profit Before Tax (norm)

(223)

124

103

306

413

Profit Before Tax (FRS 3)

(223)

124

103

306

413

Tax

 

 

63

(62)

(39)

(58)

(65)

Profit After Tax (norm)

 

(243)

104

80

248

348

Profit After Tax (FRS 3)

 

(160)

62

65

248

348

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

116

121

141

156

158

EPS - normalised (C$/share)

(2.1)

0.9

0.6

1.6

2.2

Dividend per share (C$/share)

2.6

2.6

2.7

2.8

2.8

 

 

 

 

 

 

 

 

Gross Margin (%)

 

68

72

71

69

70

EBITDA Margin (%)

 

44

66

52

61

62

Operating Margin (before GW and except.) (%)

(20)

18

11

19

22

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

Fixed Assets

 

3,861

3,713

5,271

5,024

4,733

Intangible Assets

 

275

293

297

323

323

Tangible Assets

 

3,433

3,338

4,733

4,460

4,169

Investments

 

153

82

241

241

241

Current Assets

 

226

262

380

412

442

Stocks

 

 

15

17

22

22

22

Debtors

 

 

132

166

230

230

230

Cash

 

 

63

47

99

132

161

Other

 

 

17

32

29

29

29

Current Liabilities

 

(291)

(363)

(502)

(502)

(502)

Creditors

 

 

(218)

(258)

(333)

(333)

(333)

Other short term liabilities

(73)

(105)

(169)

(169)

(169)

Long Term Liabilities

 

(2,218)

(2,069)

(2,519)

(2,301)

(1,941)

Long term borrowings

 

(1,362)

(1,270)

(1,583)

(1,338)

(950)

Other long term liabilities

(856)

(798)

(937)

(963)

(991)

Net Assets

 

 

1,578

1,543

2,630

2,634

2,732

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

Operating Cash Flow

 

510

594

851

1,151

1,271

Capex

 

 

(242)

(320)

(502)

(563)

(539)

Acquisitions/disposals

(99)

(28)

(114)*

0

0

Financing

 

 

(17)

(4)

(5)

(6)

(6)

Dividends

 

 

(105)

(200)

(279)

(303)

(309)

Net Cash Flow

 

47

41

(49)

278

417

Opening net debt/(cash)

1,346

1,299

1,224

1,484

1,205

HP finance leases initiated

0

0

0

0

0

Other

 

 

0

34

(211)

0

0

Closing net debt/(cash)

 

1,299

1,224

1,484

1,205

789

Source: Company accounts, Edison Investment Research. Note: *Spartan acquisition consideration consisted of 27.9m VET shares valued at C$1.2bn. Edison calculates net debt as long-term debt, plus short-term debt minus cash and cash equivalents.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Vermilion Energy and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Vermilion Energy and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

SNP Schneider-Neureither & Partner — Revenue guidance is cut by 9.8% at mid-points

SNP’s preliminary H118 results indicate that the strongly anticipated tsunami of SAP S/4HANA transformations has continued to shift out as enterprises await greater clarity on the technological transition to the new cloud platform. After the Q1 results in May we reported that there had been several S/4HANA project delays, as such transformations are highly complex to implement. We understand this trend has continued. Nevertheless, SNP remains extremely confident that the tsunami is just a matter of time. In preparation, SNP has established new partnership with IBM Services incorporating a novel ‘Bluefield’ approach to target the potentially substantial S/4HANA market. We have removed our forecasts and will review them after the full Q2/H1 results on Thursday.

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