Hi everyone I’m back to share with you a couple more investing purchases I made in my Tax Free Savings Account (TFSA). On June 9th I added two new stocks to my portfolio, both are in tech sector an area where I am weak in at the moment. I’ve had both stocks sitting in my watchlist for awhile and finally decided to buy and add them to my growing portfolio. I will share one purchase with you today and the other later in the week. I decided to create another post because this one was getting pretty long.
First Buy – Open Text Corporation
What is Open Text?
Open Text Corporation provides a suite of software products and services. The company offers content services; business network, a cloud-based platform that facilitates collaboration and exchange of information inside and outside of organizations; artificial intelligence and analytics solutions; and OpenText EIM platform that provides multi-level, multi-role, and multi context security information platforms. OpenText also provides digital process automation, which enables organizations to transform into digital data-driven businesses through automation; Customer Experience Management, a set of processes used to track customer interactions throughout the customer journey; Magellan, an artificial intelligence (AI) and analytics platform that combines open source machine learning with advanced analysis and is able to merge, manage, and analyze both structured and unstructured, textual content; and Discovery suite that provides forensics and unstructured data analytics for searching, collecting, and investigating enterprise data to manage legal obligations and risk. In addition, the company offers customer support programs that include access to software upgrades, a knowledge base, discussions, product information, and an online mechanism to post and review trouble tickets. Further, it provides professional services, such as consulting and learning services relating to the implementation, training, and integration of its licensed product offerings into the customers’ systems, as well as cloud services. The company serves organizations, enterprise companies, mid-market companies, and public sector agencies worldwide. It has strategic partnerships with SAP SE, Microsoft Corporation, Oracle Corporation, Salesforce.com Corporation, Accenture plc, Deloitte Consulting LLP, Tata Consultancy Services, ATOS, and Ernst & Young.
(source: Yahoo Finance)
Open Text (ticker: OTEX) is a Canadian tech company based in Waterloo, Ontario. This company has been on my radar for awhile. Open Text has been growing significantly over the last few years, the company is very on acquiring other companies, in the past five years they have spent $4.8 billion.
Open Text has four sources of revenue: Licence, Cloud Service & Subscriptions and Professional Service & Other. The company has a huge and growing cloud service called Open Text Cloud at the end of the third quarter of Fiscal Year 2020 which ended on March 31st they had over 74,000 customers and growing. Open Text has signed partnerships with Amazon Web Services and Microsoft Azure which are helping to fuel the growth.
As you can see The Cloud and Customer Service are the company’s two main revenue sources. Open Text Cloud is growing very quickly fueled by acquisitions over the years. By the end of Fiscal Year 2020 which will end on June 30th cloud service revenue will probably climb over $1 billion. At the end of March cloud revenue stood at $825 million which is 23.9 % growth year over year.
One thing I would like to see from Open Text in the future is better organic growth. I think looking at the chart above there are periods of little to no growth and they are too reliant on acquisitions to grow the business. If they can continue making acquisitions and have better organic growth I believe the stock will skyrocket.
The company currently has over 100,000 customers from all of their business segments. They have an Annual Recurring Revenue (ARR) renewal rate of over 90%. It is great to see this as it shows customers have faith in the company and the software that Open Text provides.
Responding to COVID-19
In March the company announced a restructuring and compensation plan which includes the following:
- Reduce discretionary spending
- reduce salaries for executives, senior leadership, board of directors and other workers.
- Adopt a hybrid return to work strategy
- Undergo restructuring plan that is expected to cost $80 to $100 million completed by end of Fiscal Year 2021.
- Anticipate annualized cost savings of $65 to $75 million after restructuring plan.
At the end of March the company had $1.45B in cash so they have plenty of liquidity and cash on hand.
FY20 Third Quarter Highlights
- Record operating cash flows of $329.6 million up 15.2%
- Annual Recurring Revenue of $662 million up 20.6%
- Cloud Revenue of $339.5 million up 42.3%
- Announced partnership with Amazon Web Services
- Big customer wins of General Motors, Nestle S.A., Gendarmerie Nationale (French) plus others.
The company has raised their dividend every year since 2014. Currently the dividend sits at $0.1746 per share quarterly or $0.6984 annually. The stock doesn’t have a great yield however the dividend has been growing and I’m good with that as long as we get capital appreciation as well.
I purchased 10 shares @ $57.99 per share. The purchase will add $1.75 in dividend income quarterly and $7 annually.
So what do you think of my purchase? Do you own the stock? Feel free to share below.