Open Text (OTEX.TO)

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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Likes it here. Low organic growth rate historically. Recent demo of Navigator with embedded AI was impressive.  Capable serial acquirer. Bread and butter are enterprise content-management platforms: recurring revenues, high retention, mission critical for the Global 10,000. Undemanding multiple. Compounds earnings in mid-teens. Value and growth.

Management deserves more credit. They made their biggest acquisition in history in 2022 which caused the stock to plummet. However they have managed to turn it around as they had claimed they could and are now getting some revenue growth from the acquisition.They have also paid down $2 billion in debt so have a better balance sheet. trades at 11X earnings.

Is growing this year, but long term and compared to peers lacks growth in the software consolidation space.

(A Top Pick May 18/23, Down 4%)

Laggard in the market with disappointing results. Organic growth has been slow. Continues to own shares. Serial acquirer to create growth. Recent M&A starting to pay off. Earnings per share expected to rise. 150 million global users. A.I. products expected to increase. Good long term investment. 

Very strong business that has been proving itself. Recent weakness is share price has created major investment opportunity. Believes further upside in the stock. Debt levels coming down. Lots of opportunity going forward. Excellent vertical depth in business mode within sectors. 

It is in software which is a great sector. He owns a small amount but owns more of Constellation Software. Open Text has had mixed results over time but is inexpensive and the forecast is for good earnings growth over this year.

No. The asset was more hardware, whereas OTEX is trying to skew more toward SaaS, AI, large-language models. Today's theme: you have to scale in, as the market is rich, mainly because the USD is so weak. Buy in thirds here, around $52.50, and just under $50. See his Top Picks.

Has owned shares for a long time. Good for long term investors. Added shares in November. Stock performing well since fall. Expecting another acquisition. Not at low entry point. Consistent business. 

In Q1 FY2024 for OTEX, both revenue and EPS beat analysts’ estimates. Revenue came in at US$1.425B displayed year-over-year growth of 67% from $852M. Year-over-year growth in revenue was driven by Cloud revenues increasing 11% and annual recurring revenues increasing 59%. Adjusted EPS came in at $1.01, beating analysts’ estimates of $0.90. Net income was $81M compared to a net loss of ($117M) in the same period a year prior. This was a strong quarter for OTEX, with record quarterly revenue. 

OTEX recently divested AMC for US$2.275B to Rocket Software in an all-cash deal. OTEX has stated that the sale will allow the company to focus more on cloud computing and AI while cutting debt and having the ability to buy back shares in the future. The transaction is expected to close in Q4 of FY2024. Multiple banks upped price targets following this move. The focus on AI and cutting debt that the deal provides are two positives we like to see. Its valuation multiple has historically been held back because of its leverage. 
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OTEX were embracing AI before the AI explosion in Q2 this year. This was trading at great valuations in 2022, a rough year for tech. Will continue to lead in Canada in 2024.

Market likes that it spun off AMC, lowering debt. Getting pricey. Leader in content services. Supply chain analytics, AI solutions. Delivering. Stock has momentum.

Strong Canadian tech name. In TFSAs. Revenues growing, cloud exposure, starting to integrate AI. Reasonable valuation. Small company means stock price volatility. A name to consider for a 5 to 10-year time horizon.

Stock's recalibrated on slowdown in tech sector multiples. AI is going to be a game-changer, some industries will be impacted significantly, and it will fundamentally change this company. Likes it at these levels.

It is involved in the AI space and has been integrating it into their product solutions. It has done well with the tech bounce. He could see a further pullback before getting back into it.