OTEX - Valens Credit Report - 2021 07 09
Credit markets are slightly understating credit risk, with cash bond YTW of 1.867% relative to an Intrinsic YTW of 2.397% and an Intrinsic CDS of 153bps. Meanwhile, Moody's is overstating the firm's fundamental credit risk, with its speculative Ba1 credit rating two notches lower than Valens' IG4 (Baa2) credit ratingIncentives Dictate Behavior™ analysis for OTEX's management compensation framework highlights mixed signals for credit holders. Management is incentivized to focus on revenue growth and margin improvement, which could lead to Uniform ROA improvement and increased cash flows to service debt. That said, the lack of asset efficiency and debt metrics may incentivize management to overspend on assets or overleverage the balance sheet in pursuit of growth
Earnings Call Forensics™ of the firm's Q3 2021 earnings call (5/6) highlights that management may have concerns about their automotive business and US-China trade tensions. Moreover, they may be overstating the sustainability of the strength in their cloud business, and they may lack confidence in their ability to continue to improve their net leverage ratio. Finally, they may be exaggerating the capabilities of their content cloud and the strength of their fiscal outlook
Open Text is a provider of a suite of software products and services that assist organizations in finding, utilizing, and sharing business information from any device. In addition, Co. provides solutions that facilitate the exchange of information and transactions between supply chain participants, such as manufacturers, retailers, distributors and financial institutions. Co. provides software through on-premise solutions, cloud solutions or a combination of both on-premise and cloud solutions. Co.'s enterprise information management offerings include: content services, business process management, customer experience management, discovery, business network, and analytics.
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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