Buy information technology stock Open Text

Open Text is a Canada-based info tech stock operating in enterprise information market systems. The Company provides software products and services to organizations in finding, utilizing and sharing business information. Toronto-based technology stocks research analyst Gabriel Leung of Beacon Securities says it’s a solid ‘buy’.

Cloud-Based TechnologyEnterprise information management company Open Text Corp. (TSX─OTC; NASDAQ─OTEX) unveiled its new upgraded software platform at its recent annual user conference, and according to Beacon Securities technology stocks analyst Gabriel Leung, Open Text is something to write home about.

Open Text’s new software platform, code-named Blue Carbon, boasts an improved user interface and tighter integration amongst the various product suites, including content authoring, analytics, and business-to-business networking.

The analytics module is available within all suites (thanks to the Actuate acquisition), and the availability of all suites is on cloud-based technology, thereby creating much more flexible deployment options for customers.

Mixed reaction to cloud-based information management

Mr. Leung goes on to write: Our discussions with customers suggest that the majority were impressed with the improved user interface, along with the ability to layer analytics to the Enterprise Information Management (EIM) suite. With regards to the fully-managed cloud-based technology, however, discussions with customers suggest a mixed view, with commercial customers very interested in exploring this deployment option and public sector customers exhibiting caution given potential regulatory hurdles.

That said, the analyst believes the general availability of Blue Carbon, which is expected to drop in March 2016, could help to stabilize Open Text’s licence revenue base, with growth coming from customers adding new modules, including the new analytics suite. More importantly, we believe the availability of Open Text’s EIM suite in the cloud could help to accelerate this revenue line. (Most of the company’s cloud sales to date have been related to the older GXS products.) GXS, as it stands, is a subsidiary of Open Text specializing in business-to-business integration.

Looking ahead, Open Text spoke briefly of its next generation upgrade code-named Banff, which will feature even tighter integration and a single unified user interface. Banff is targeted for a 2018 launch.

Revising partner compensation model

Additionally, the company noted that it was revising its partner model largely to change the compensation plan to referral fees as opposed to ongoing fees, with partners receiving a portion of annual maintenance renewals.

The analyst states that this could help to drive higher gross margins, although he cautions that it could cause minor volatility in partner-related revenues over the near-term. The company did note that this change does not impact its relationship with top channel partner SAP.

$1 billion slated for information technology R&D

The company also maintained its spending target of $4 billion over the next few years ($3 billion for acquisitions and $1 billion in research and development) and to achieve 2020 financial targets of 34 per cent to 38 per cent adjusted operating margins, 90 per cent or greater recurring revenues and 50 per cent or greater, cloud-based revenues.

Mr. Leung reaffirms previous recommendations of Open Text Corporation as a solid ‘buy’ with a 12-month price target of US$56, unchanged from previous estimates.

 

Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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