As most of us are already aware, SAP is currently buying back EUR 500M in Stock thru to Dec 31, 2022. This comes behind a buyback of about EUR 1 Billion in the first half of 2022 and the repurchase of about EUR1.5 billion in 2020.
That's a sustained 2 year program that bought back lot of stock. There are several reasons why a company would buy its own stock back, such as the company believes the market has discounted its shares too steeply, or maybe to invest in itself, etc.
But one prominent reason why companies repurchase its own stock is to increase shareholder equity. in other words, fewer shares means whatever dividends are distributed on annual basis will be greater for each individual investor because there are fewer shareholders and the dividends go around much more plentiful and in the end the investors are presumably happy because for the specific year ending they got an "OK" dividend even if the stock underperformed. ( we are now about 56% down from our stock high price of 2 years ago). It was also pretty cool that Hasso bought 300M in stock while the company was also buying back stock - it not only reduced the available stock but will also do him very well when the dividends are distributed.
So now I am wondering has CK and HP come up with a brilliant scheme to offset the losses in operating profit which has plagued SAP year after year with some improved dividends? Which were gained not by profitable performance but some fancy footwork to decrease the number of shares and increase the available dividend per shareholder - a cunning juggle indeed !
If yes then this is a very bad omen because it signals that the Exec team doesn't really believe they can control costs and would rather satisfy the investment community with a masterful decoy. In such case what then should be expected when the available cash runs out and there is no more funding to buyback shares? Well it means that the shareholders get neither profitable performance or meaningful dividends and this is never a good combination. If this is an attempt to pull over a clever gimmick, we are playing with fire. I think the redline is, If we don't begin to show profitable performance in Q3 and Q4 of this year it could be time for somebody(s), as they say, to belly up to the bar and hopefully it's none of us.