Across an array of sectors, the analysts at Industrial Alliance Securities today revealed their top picks for 2018, and tech analyst Blair Abernethy says his are OpenText (TSX:OTC, Nasdaq:OTEX) and Symbility Solutions (TSXV:SY).
Abernethy says he expects the dominant themes of 2018 will be Artificial Intelligence, Cloud Computing and Blockchain Technology. Of these, the analyst says he believes AI will have the biggest impact on the tech industry and on his coverage universe, in particular.
Abernethy’s top pick in large cap Canadian tech is OpenText, which he currently has a “Buy” rating and one-year price target of (U.S.) $38.00 on. He says he expects OpenText will continue its tradition of growing through acquisition in 2018.
“We expect additional medium scale acquisitions (which are not included in our estimates) over the next year, particularly in the information exchange (OpenText “Cloud”) segment and in newer product areas such as analytics, that should continue to add critical mass and create more operating leverage opportunities for OpenText,” the analyst says. “Currently, OpenText has $376M in cash plus available credit lines of $75M. In our view, the Company has ample liquidity and positive cash flow ($67M in Q1) to sustain its acquisition-driven strategy over the next few years.”
But the analyst says he doesn’t expect the Ottawa-based company will be a one trick pony, and that investors should keep an eye on organic growth.
“We believe there is significant potential for improved organic license revenue growth in F2018 as OpenText is in the midst of a strong product cycle, benefits from increasing information governance regulatory requirements (such as the General Data Protection Regulation (GDPR) starting on May 25, 2018 in Europe), and plays an unstructured data record keeping role in the digital enterprise trend,” he says. “On the product front, OpenText released its EP series 3 in the fall of 2017 and expects to release 4 in April 2018. BANFF, its next generation Hybrid platform, is expected in 2019 and should be an important product cycle as it integrates more features across the cloud, ECM and analytics offerings.”
Abernethy’s other top pick comes from the small cap tech space. The analyst currently has a “Buy” rating and a one-year price target of $0.70 on Symbility Solutions (TSXV:SY). He says Symbility ties in the AI theme he thinks will be prominent in 2018.
“In our view, Symbility is currently undervalued given its strong organic growth, improved profitability and the opportunity to significantly expand its customer base and TAM by integrating AI technologies. We remain positive on Symbility as the Company’s innovative solutions continue to gain traction and competitiveness in the marketplace. Symbility is investing in adding AI functionality to its product offering both on the back-end and front-end, which should help augment its top-line growth for 2018 and beyond,” Abernethy says.