Opinions
Lyle Stein
Open Text
OTEX-T
COMMENT
Sep 26, 2017
Stock price when the opinion was issued
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Premium contentThe Canadian based data and management software developer is once again building cash reserves as debt is aggressively retired and shares bought back. It trades at 16x earnings, 1.8x book and has a good yield that is backed by a payout ratio under 60% of cash flow. We recommend setting a stop-loss at $34, looking to achieve $49 -- upside potential of 18%. Yield 3.4%
(Analysts’ price target is $49.10)That's a question every company should be asking. It takes a long time for technology to disrupt an industry. OTEX has to keep investing to stay relevant, and AI might be an opportunity. Not particularly high growth, but they chalk up free cashflow. Buys back 10% of shares every year.
The caller asked about his opinion on both of these companies. Open Text is much larger and is very leveraged, Open Text did a large deal which is not at their comfort level. He has never owned it. Enghouse has no debt along with lots of cash. The CEO of Enghouse is on the board of Open Text. He owned Enghouse but sold last year. It is cheap so it's time to move on. It is a much much smaller version of CSU
"Garbage in, garbage out" is a saying that demonstrates how you really need to have your data house in order to optimize decision-making processes. Earnings YOY still shrinking, and so it trades at a low multiple. Organic revenue decline is concerning. They can't M&A their way out of this.
Not a high-quality business. Struggles for organic growth. 10+% free cashflow yield. They should stop worrying about organic growth and just buy back shares, and they could buy back the whole company in less than 10 years. He might even send a note to that effect once a permanent CEO is appointed :)
It's business as usual in the meantime, under a temporary CEO who's been with the company for 25 years. Yield is 3.09%.
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Recently bought this. Had been looking at names that were unduly hurt or had not participated in this big rally, and this one was a screaming opportunity. Had some struggles lately, as the market is trying to digest its recent acquisitions. They have a bit of a tax issue with respect to the US. A good fundamental company with a reasonable amount of earnings. Their acquisition makes sense and will allow them to continue to grow.