A new acquisition for Open Text has National Bank Financial analyst Richard Tse declaring a strong start to fiscal 2019 for Open Text (Open Text Stock Quote, Chart: TSX, Nasadq:OTEX).
On Wednesday, Open Text announced the acquisition of Liason Technologies for (US) $310-million.
“The acquisition of Liaison is expected to further enhance Open Text’s offerings in digital ecosystem and business-to-business integration solutions as well as application-to-application integration and master data management capabilities,” an anonymous director said. “The proposed acquisition also expands Open Text’s capabilities within key verticals such as life sciences and health care. Additionally, the acquisition enables Open Text to address fast-growing adjacent market segments, including integration platform-as-a-service (iPaaS) with a managed services approach.”
Also Wednesday, OTEX reported its Q1, 2019 results. The company earned (US) $36.36-million on revenue of $667.2-million.
Tse says while there were moving parts in the quarter, the end results met his expectations.
“OpenText reported an essentially in-line fiscal Q1,” Tse says. “While revenue was a touch light, scaling operating margin resulted in an EPS beat. In addition, OpenText announced it had signed a definitive agreement to acquire Liaison Technologies Inc. for ~$310 mln in cash with a target to close in the next 90 days. All in, there was nothing in the quarter that changes our investment thesis. While we estimate organic growth was flat in the quarter, an acquisition at the start of F2019 reaffirms our view. Moreover, we’d call this a strong start to fiscal 2019 when it comes to capital deployment where our estimates were calling $350 mln in acquisitions in F2019.”
In a research update to clients today, Tse maintained his “Outperform” rating and one-year price target of (US) $50.00 on Open Text, implying a return of 50 per cent at the time of publication.
Tse thinks OTEX will generate Adjusted EBITDA of $1.1-billion on revenue of $2.97-billion in fiscal 2019. He expects those numbers will improve to EBITDA of $1.21-billion on a topline of $3.18-billion the following year.
“The reality is that this is not a name that moves linearly, but it’s one where we continue to see meaningful value with some compelling defensive attributes given the recent market backdrop,” Tse adds. “We see a growing base of recurring revenue through acquisitions, expanding operating leverage, and optionality from organic growth. When paired with a flexible balance sheet, it’s no surprise why we continue to rate OTEX an Outperform.”