otex valuation jif
TRANSCRIPT
OpenText Valuation (OTEX)| 09.20.16Ulysses Dane Hickey
Overview
Open Text Corporation provides intranet, extranet and corporate portal solutions to organizations located throughout the world. The Company’s flagship product, Livelink is an off the shelf, enterprise scalable, collaborative application for companies that want to leverage their information and resources through intranets
“Unlocking the value of enterprise information requires finding , analyzing and making
sense of large volumes of information” – Mark
Barrenechea, CEO OpenText
• Diversified geographic revenue stream
• 80% Institutional Ownership
Canadian Dollar: Quarterly Actual/ Forecasts
Citigroup (Green) Barclays (Pink)
Exchange Rate Risk: 2016- one cent change in Canadian Dollar to US would result in a change of $0.3 Million in mark to market on existing forward exchange forward contracts Compared with 2015 of $0.8 million
------------------------------------------------------
Strategic Rationale
Strategic Rationale• Expands OpenText’s EIM products
and services portfolio.• Drives cross-sell of OpenText EIM
portfolio into Documentum customers.
• Expands geographic coverage, increasing our exposure into emerging markets.
Optimize financial performance• 2020 aspiration of 34% to 38%
adjusted operating margin (AOM) remains unchanged.
• On operating model within 12 months of closing.
• 900 million in highly recurring revenues
Transaction Overview
Acquisition Details• Purchase price of US$1.62 billion is
approximately 2.7 times ECD FY’15 revenue of $599M1
• Targeting to be immediately accretive to earnings, onboard to the OpenText operating model within the first 12 months.
• Expect the transaction to close within 90 to 120 days, subject to regulatory approvals and customary closing conditions.
Financing• $1.0 billion debt commitment
provided by Barclays in support of the acquisition.
• OpenText’s objective is to maintain a conservative capital structure, preserving its current credit ratings.
• The permanent financing may include elements of cash on hand, new borrowings under credit facilities, and newly issued equity.
Open Text Corp acquired GXS Group Inc consulting services for USD 1165.00 CASH
HP sold Customer Communications Management Open Text Corp for USD 315.00M CASH
Dell announced the sale of its EC Division to Open Text Corp for USD 1,620.00MCASH
SPX Comparison Over 1 Year
SPX Comparison Over 3 Years
Key Points
OTEX 2013 2014 2015 2016Return on Assets 5.83% 6.66% 5.68% 5.98%
Operating Margin 14.50% 18.50% 18.83% 20.20%
Net Income Margin 10.89% 13.43% 12.65% 15.59%
Revenue Growth 12.91% 19.17% 13.99% -1.50%
"Fiscal 2016 was a pivotal year for OpenText, in constant currency, we grew revenues 3% and created a more efficient business and expanded our adjusted operating margin by 240 bps. More importantly, we believe we have created the foundation for Fiscal 2017 to be a double-digit growth year led by M&A,“ - CEO Mark J. Barrenchea
Strengths
Strong consistent revenue growth
Net income increasing year after year
Increasing operating margin
Heaving investing and acquisitions
Increasing cash flow from operations and net cash
flow
Recommendation
• Strong Buy: 203 Shares at a price of $13,278.23
• Best Case: 1 year price target DFC $99.53-Perpetuity Growth $89.29
• Worst Case : 1 year price target $73.53 with 14% upside