>May be investors got a bit spooked with forecast for couple of tough quarters in software business.... <
This seems to be the main reason why the stock fell today. Short term traders, and uninformed investors are being spooked out. The software sector is going through a post Y2K blues, and together with other software companies (Peoplesoft, SAP) Geac's internal revenue growth has slowed down. Long term prospects remain strong, and the stock is certainly very cheap. It is a value play on a tech stock. For long term holders, the stock price today is an opportunity to buy.
I heard the conference call, and except for the expected softness in revenue for the next 2 quarters, all other aspects are positive:
1. REALIZATION OF SHAREHOLDER VALUE: The Company is going into the Onex type model, buying companies, working out, and selling them. The announced sale today of the banking unit for 3.5 times revenue shows the viability of such a model.
2. GLOBAL BRANDING: Growth from further acquisitions. The mission is to be a dominant "back bone supplier" About 100 possible acquisition candidates around... opportunity to acquire them during this sector slowdown. Geac's business plan is to be a dominant player and to do this, it needs to consolidate a fragmented industry.
3. TRANSFORMATION: Selling professional services to existing clients to move them to e-commerce, asp.
4. ACCESSIBLE BY U.S. INVESTORS: Geac plans to list in States to be more visible to US investors.
5. COST CONTROL: Controlling cost to revenue
6. 3 - YEAR PLAN: To be a 2 billion revenue, dominant, biz enterprise company within 3 years.
I got a good feeling about the CEO and CFO, especially the latter. He sounded like a no-nonsense guy who knows cost/revenue balancing, and pretty determined to keep a clean balance sheet including quicker amortization of goodwill and development costs. Company will be substantially debt free after selling off the banking unit (closing within a week or so).
My conclusions:
* Company going into the Onex model. Feel confident that the model will work to eventually bring out shareholder value.
* Revenue will be soft for next 2 quarters due to post Y2K doldrums. Should pick up by Q3.
* More (albeit smaller) acquisitions can be expected.
* More spin-offs can be expected.
* Short term, stock will be under pressure. Long term (a years time), stock price expected to recover.
* No problems with financial strength and long term business viability. Geac will be around for a long time, unless itself acquired by another company.
* Stock is cheap, cheap, cheap. Low risk/high reward, provided you are patient (year or two). |
