Despite recent run OpenText is still undervalued, says Cormark’s Tse

Attendees of this year's OpenText user conference in Orlando may be distracted by keynote speaker William Shatner, but Cormark analyst Richard Tse is focused on the company's potential for growth from its recent acquisition of GXS Group.

After announcing the $1.16-billion acquisition of GXS Group on November 5th, shares of OpenText (TSX:OTC) have gone on a run. But investors still aren’t pricing in all the potential the company has for both organic growth and growth through acquisition, says Cormark Securities analyst Richard Tse.

OpenText’s annual user conference, Enterprise World, ends today in Orlando Florida. While many might be distracted by the events keynote speaker -none other than Captain Kirk himself, William Shatner, Tse is focused on Red Oxygen and Blue Carbon.

Red Oxygen and Blue Carbon, respectively, are code names for OpenText’s current line of products and a future line of products that build on the former.

Tse says there is simultaneously reason to be excited about new products from OpenText and reason for caution. He believes new products have the potential to drive organic growth, but wonders aloud about the company’s recent track record on organic growth and the details on how they will achieve it going forward.

But in the short term, says Tse, questions about Blue Carbon are somewhat irrelevant because the market still isn’t fully pricing in the potential growth from the GXS acquisition. The Cormark analyst says he sees “considerable” synergies from the pickup, including lower finance costs and interest savings. His initial estimates have the company tacking on between $0.80-1.20 in EPS within the first year alone.

In a research update to clients yesterday, maintained his BUY rating and $95.00 one-year target on OpenText. At press time, shares of the company on the TSX were down .7% to $88.28.

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