Is its business comparable to that of CSU or LMN ? I am aware of all the strengths of the latter two - including great management, but does OTEX really deserve what appears to be a substantially lower relative valuation?
OTEX has total debt of $8.84B and net debt of $7.84B. Total debt to equity ratio is 2.2x and Total debt to EBITDA is 5.8x, so debt is definitely high and one reason for lower valuations. OTEX is currently paying a decent yield of 2.77% and looking at payout ratio from free cash flow over the last twelve months is 37%. We do not think there is much risk in the dividend at these levels. While debt is high, interest coverage ratios are more comforting with an EBIT/Interest Expense of 1.5x and EBITDA/Interest Expense of 2.6x. So while debt is at high levels, OTEX is generating enough adjusted earnings to cover payments. OTEX is also expected to see high growth this year and is benefiting from AI tailwinds. While OTEX's current year outlook for growth is good, beyond, 2024 things are expected to slow. The decline in share price it has seen could be attributed partially to debt concerns but also investors shifting to other tech/AI options that have longer runways for growth.
OTEX shares some slight similarities with CSU and LMN just due to the broad software exposure that all the companies have. CSU of course has a huge suite of software offerings due to its acquisitive growth strategy so there is some overlap. OTEX has a significantly weaker balance sheet and growth outlook compared to CSU and LMN. While OTEX is very cheap right now, but it is fundementally weaker than the latter two and should be substantially cheaper.