OpenText is a buy, Industrial Alliance says

Ahead of the company’s fourth quarter results, Industrial Alliance Securities analyst Blair Abernethy is maintaining his “Buy” rating on OpenText (TSX, Nasdaq: OTEX).

On August 2, after the market close, OpenText will report its Q4, 2018 results. Abernethy expects the company will generate Adjusted EBITDA of $0.68 on revenue of $727.1-million, basically in-line with the street consensus expectations.

The analyst says things are generally improving for the Ottawa-based company.

“We believe the macro enterprise IT spending environment has been improving for OpenText in Q4/F18 and expect to see additional integration progress with ECD,” Abernethy says. OpenText, like other traditional on-premise license-based software vendors, is in the midst of transitioning its legacy customer base over to its newer cloud-based ECM application offering.”

In a research update to clients today, Abernethy maintained his “Buy” rating and one-year price target of $40.00 on OTEX, implying a return of 7.1 per cent at the time of publication.

The analyst says he expects several positives to emerge from the quarterly results.

“Moving to the balance sheet, we expect OpenText to show improving cash flow from operations as it continues to drive more efficiencies from ECD, has lower integration costs, and adds contributions from the Covisint and Guidance acquisitions. We expect OpenText to end the quarter with cash of ~$605M and debt of $2,691M.”

The IA analyst thinks OpenText will post Adjusted EBITDA of $998.6-million on revenue of $2.79-billion in fiscal 2018. He thinks those numbers will improve to EBITDA of $1.04-billion on a topline of $2.84-billion the following year.