Open Text (OTEX.TO)

About 10% left on the upside runway. Better opportunities elsewhere.

Familiar with business. Good at M&A, but has used a lot of debt in business model. Better options like Constellation Software available for investors. Doesn't own shares. 

It now has a different strategy and is not acquisition driven any more. Other companies are more attractive for returning capital to shareholders.

12-month price target of $48. More appealing, longer runway opportunities elsewhere.

Coming into the low point it saw in 2022, trying to bounce off, so far so good. Earnings will either add to that momentum or do the opposite. He doesn't usually buy the day before earnings.

If earnings news is good, could easily see return to mid-high $50s, a big level of resistance in the past. If you own it, give them the benefit of the doubt. If not, hold off until they report.

Other companies in the space make more sense to him. Getting into AI in a big way. Not impacted by today's market dive too much. He has a 12-month price target of $49.25. Add in thirds here around $43, $41, and $39. (Shouldn't go below $37.50.)

Last earnings beat on top and bottom lines, but not on margins (32% vs. expected 36-37%). Capex with so many companies has just ballooned, as they try to be competitive.

Buying shares in recent market selloff. Latest earnings report not strong. However, business is very good. Would recommend holding for long term investors. Recent M&A has a lot of potential. Expecting higher margins and cash flow. 

Disaster the last 5 years, down about 40%. Should be doing better, given demands for software. Market did not like one expensive acquisition, hurt balance sheet, still not recovered. No interest.

CSU is the one for him. 

It has its moments from time to time, but overall hasn't been great for awhile. Part of the issue is it's still quite levered. There are other compounding machines, but this one just doesn't get the job done. Sell, and buy something like DSG or CSU.

He's looked at it and it's done a fairly good job. Would much prefer ENGH or CSU. And CSU is the clear market leader of companies that rely on acquisitions to drive growth.

OTEX has been trading sideways over the past couple of years, and its recent earnings results sent the stock lower. It remains highly profitable with good free cash flow, and trades at a cheap valuation for a tech stock (8.3X forward earnings). Its low valuation makes it a HOLD, but we would not add and do not like the negative momentum here.
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Growth rates have really come down. It's taking longer to convert customers to cloud and AI. Good, long-term name that will be there. Better areas in AI elsewhere. Good at lower levels, but not here.

Owns shares in dividend fund. Will continue to hold. Downward guidance has prompted market selloff. Sales growing and appears business plan is strong. Recent management meetings presenting high quality of products.  New A.I. technology very impressive. Current trading multiple very attractive for investors. Consistent dividend growth with steady income at ~3%. 

They're trying to incorporate AI and haven't benefited from this AI boom. He's owned this for a while in his TFSA. Has been volatile, their free cash flow growth has been consistent and it's a quality name. Don't expect huge, sudden returns, but it's a good way to offer tech exposure.

OTEX has total debt of $8.84B and net debt of $7.84B. Total debt to equity ratio is 2.2x and Total debt to EBITDA is 5.8x, so debt is definitely high and one reason for lower valuations. OTEX is currently paying a decent yield of 2.77% and looking at payout ratio from free cash flow over the last twelve months is 37%. We do not think there is much risk in the dividend at these levels. While debt is high, interest coverage ratios are more comforting with an EBIT/Interest Expense of 1.5x and EBITDA/Interest Expense of 2.6x. So while debt is at high levels, OTEX is generating enough adjusted earnings to cover payments. OTEX is also expected to see high growth this year and is benefiting from AI tailwinds. While OTEX's current year outlook for growth is good, beyond, 2024 things are expected to slow. The decline in share price it has seen could be attributed partially to debt concerns but also investors shifting to other tech/AI options that have longer runways for growth. 

OTEX shares some slight similarities with CSU and LMN just due to the broad software exposure that all the companies have. CSU of course has a huge suite of software offerings due to its acquisitive growth strategy so there is some overlap. OTEX has a significantly weaker balance sheet and growth outlook compared to CSU and LMN. While OTEX is very cheap right now, but it is fundementally weaker than the latter two and should be substantially cheaper. 
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