Q: Please can you give me your opinion of OTEX. I am thinking of buying it. Thank you
5i Research Answer:
OTEX has a rising dividend yield, now at 4.6%, forward sales and earnings estimates call for modest growth, but margins have been expanding. Its free cash flow is strong and mostly uses its cash flows to repurchase shares and issue dividends. Debt levels are OK, but somewhat high. The cloud pivot is real - 20 consecutive quarters of cloud organic growth - and the asset divestitures (eDOCS, Vertica) are cleaning up the portfolio. The risk is execution under new leadership and continued revenue pressure in legacy segments. It trades at a very cheap valuation of 5.6X forward earnings, and we think it is decent for a value name, but we would not expect much in the way of capital appreciation unless the fundamentals materially change.