At $13.90, Geac is indeeed Canadian best kept secret.
It seems to me the recent drop in stock price is totally unwarranted, and was caused by an analyst downgrade, and uncertainty of the Company's transition to e-commerce and ASP. I don't pay too much attention to analysts. They tend to downgrade when a stock is beaten down, and upgrade when a stock is hot. Upgrades and downgrades by analysts are more commonly politically motivated, such as, not looking foolish when stock has fallen, not missing the boat when stock has risen, not losing underwriting fees, etc.
The way I see it, the outlook for the Company's fundamentals can only improve over the next 12 months. At today's price, the stock is a bargain, because....
1. Expected synergies from integration of the JBA acquisition ( Sept/99) revenue will top $1.1 billion for fiscal 2001. Price to sales ratio of 0.8 (incredible bargain).
2. Cash flow from operations of $3.00 per share. Price to cash flow of 4.7 (incredible bargain).
3. The balance sheet has been cleaned up with a $269 million write off last year when the new CEO came on board. Yes, there may be a bit more write-off this year end (and perhaps this explains the recent drop in stock price...)however, I don't expect any further write-off as too material... otherwise, the new management would have pre-warned. Always nice to buy a stock after new management have done house cleaning on the balance sheet.
4. Spin off of inteRealty biz will be positive for shareholders. Company has indicated more spin off strategies... this will be accretive for shareholders.
5. Transition to e-commerce and ASP is also positive... Imagine having over 1,100 captive customer base to sell new e-commerce and ASP applications to.
So, here we have a Company supplying critical business software to 1,100 customers, with revenue topping $1.1 billion, profitable, gushing cash flow at $3.00 per share per year, moving customers from old data processing models to new Internet e-commerce and ASP models... and the stock gets beaten up because of some analyst "uncertainty" of the "transition" stage. Give me a break!
Of course there will always be uncertainty in a transition stage, however, this is a transition with "captive customers"! If your business relies on Geac for your data processing needs, and you wish to enhance to e-commerce, who would you turn to? If you wish to upgrade your data processing capabilities, and Geac has the asp applications, who would you turn to? Sure, some of the customers may have thoughts of bringing their data processing needs in-house... but try finding and hiring competent tech people in today's economy.
So we have a good situation here... steady payments from captive customers, and the opportunities to service their needs further with e-commerce consulting and asp migrations. It's like having your cake and eating it too. What's wrong with this picture that the analysts don't like? Go figure!
When within a year, the Company's earnings will grow from (a) synergies from JBA acquisition (b) e-commerce services to existing customers (c) more spin-offs (d) strategic small acquisitions of specialized Internet applications, then typically the analysts will be tripping among themselves to upgrade the stock. Money managers will then appear on tv explaining the merits of buying the stock. By then, it'd be trading in the $25. range.
Comments and opinions anyone? In particular, how much faith can investors rely on analysts upgrade/downgrade. |
