GWRE - Embedded Expectations Analysis - 2020 11 19
Guidewire Software, Inc. (GWRE:USA) currently trades at a premium relative to UAFRS based (Uniform) assets, with an 8.0x Uniform P/B. At these levels, the market has bullish expectations for the firm, but management may have concerns about Aspen, their free cash flow, and ARR growthSpecifically, management may be exaggerating Aspen's contribution to overall business momentum, and they might have concerns about the required expertise in core systems for the insurance market and the complexity of implantation related to Aspen. In addition, they may lack confidence in their ability to expand their direct written premiums for clients, keep up with technological change, and sustain free cash flows. Finally, they may be concerned about the impact of their business model shift to subscription revenue, and they may lack confidence in their ability to maintain ARR growth and cloud activity
Guidewire Software provides a technology platform, composed of software, services, and a partner ecosystem, for the property and casualty insurance industry. Guidewire InsurancePlatform? consists of cloud and on-premise applications to support core operations, data management and analytics, and digital engagement and is connected to various data sources and third party applications. The company's operational platforms include: Guidewire InsuranceSuite, which comprises of PolicyCenter, BillingCenter, and ClaimCenter applications; and Guidewire InsuranceNow, which provides policy, billing and claims management functionality to insurers that prefer to subscribe to a cloud-based, all-in-one solution.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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