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Gold/Mining/Energy : GEAC.....Canadian best kept secret
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To: robnhood who wrote (387)7/11/1998 2:34:00 PM
From: DownBig  Read Replies (3) of 1571
 
Some Thoughts on the Geac Situation

This past week has been very painful for shareholders of Geac. So painful and costly might I add, that I have decided to join SI on a temporary bases to provide you my thoughts:

You cannot fight the tape. The market, irrespective of analyst comments is saying that it doesn't like Geac. Simply put, the price keeps going down because there are more sellers than buyers.

The question is whether the price will increase from it's close of $40. Based on the following points I believe that it will:

1) For Q4 98 Geac still earned $0.74 per share even with unusual items excluded i.e. approx $44.5M

2) While the focus is on eps growth Geac will have a return on equity of over 50% in 1999 (over 30% if you add back write offs). As one analyst put it, Geac is a cash cow. Geac should earn approx $180M in 1999.

3) Geac has very conservative management. They have reduced market expectations substantially. Based on history being a good predictor of the future, the Q1 99 results to be released in September should exceed expectations.

4) Geac will likely list on the Nasdaq by the end of this calender year. Comparative stock valuations to Peoplesoft, JD Edwards and Bannf show that Geac is undervalued relative to the group, even when incorporting the fact that Geac Smartstream does not have a large share of the fast growing supply chain software market,

Another Question: What's needed for Geac to make new highs?

1) Proof that the company can start to grow at a faster rate. If revenues start growing at faster rate the market will pay a higher multiple even if margins are reduced by higher R&D and Sales & Marketing costs. This is based on Peoplesoft which has a much higher revenue growth rate, higher PE and PS but lower pre tax margins than Geac.

2) An acquisition which is viewed as accretive to earnings per share. We have been waiting over 10 months for "the Potential" acquisition and given the poor share performance there is now additional pressure to act.

To Conclude:

Things could have been a lot worse. What has happened is a reduction in expectations by the market. This has led to the PE being reduced to a very cheap 14 from a reasonable level of 22.

What is required now, is time, and the successful execution of Geac's business plan to turn the share price around.

Note: In case you haven't guessed - I am long on Geac. Also, I look forward to any comments.
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