Actually that was my own Twitter handle. I thought it would be good to post it in Valuepickr too…
Would be good if you can check with me before concluding and that would have solved the misunderstanding.
Regards
Balaji
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No Issues - My apologies for the same
As can be seen from the report by the management,
(1) The superb Q1 2021 is due to increased Digitisation by the banking industry due to pandemic Covid19. Digitization is something which is likely to continue post Covid19.
(2) If I read correctly the report, India revenue is 8% of total revenue , the rest is from rest of the world … that looks interesting …
(3)ROCE @39% is also one of the best in the Indian IT pack …
(4) The dividend yield at 6.07% is the highest among indian IT pack. The track record of dividend paid to investors has been very good.
(5) Available at Attractive valuation at 16 P/E…
(6) Oracle , the foreign promoters holds 73.3% in OFSS.
The net profit growth rate in the past for the last 3 years @6% … but i don’t expect high growth rates from IT stocks…considering the nature of the industry… Predictable steady Returns is something I like.
Discl: It forms a small part of my portfolio (1.5%)
May be biased… it is not a buy sell recommendation. please do your own assessment before any investment .
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May i request the administrator who removed my post to restore it back.
Regards
I am posting my view on OFSS once again
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Oracle financial services software limited OFSS has given almost 100% return from the lows in March 2020 but has had subdued return in the last 5 years. But with more and more banks adopting cloud to manage their businesses, OFSS can leverage with their better product and service offerings. It’s current market cap is ~ 25600 cr with current market price at 2981 per share and has cash and cash equivalents in its balance sheet of ~ Rs 4496 crores. The current P/E is 16.3 and if we remove the cash element, the P/E is only 13.5 and market price at 2453 is quite reasonable price to closely look at.
They are into core banking solutions, but with this pandemic, their products and their solutions are gearing up for greater digitization with more and more solutions through AI and Machine learning applications. Penetration of financial services is expected to further accelerate due to COVID.
Just 8% of their revenue from India and rest are all from rest of the regions and evenly spread across US, Europe and Asia Pacific. Hardly any travel, and other costs being under control, the overall expenditure in the coming year should reduce and the growth too may have some positive effect due to expected improvement in further digitization of banking services
As clients and customer expects more and more digital solutions, enhanced IT based financial applications and new products would be needed and OFSS seems to be strongly positioned to capture that market from their existing as well as new clients.
As given in their annual report “In the months to come we will see a surge in the use of online and self-service channel, there will be a boom in automation and increased need for digitized capabilities. As financial institutions prepare to meet these challenges, your company’s solutions, are designed to help customers and prospects navigate such changes successfully.”
Also its offerings under Cloud looks very promising “ Cloud adoption is gaining popularity in the financial services industry. What was once perceived as unsure business step was now seen as opportunity to reduce costs and grow the business. We have launched new initiatives and programs that enable customers to expedite their transition to the Cloud in a safe and cost effective manner”
Their June Qtr is quite encouraging with a growth of reasonable 5% even during the pandemic times with a net profit margin of almost 36% which is extremely good even from OFSS standard.
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I went through the thread and I have some question which I am not able to clear from online available sources. Does OFSS listed entity include the FLEXCUBE from erstwhile I-Flex ONLY or also the ERP suite of ORACLE which also has Finance and banking specific modules and competes with SAP ERP globally? Thanks
OFSS has only Flexcube. OFSS is infact iFlex.
Where did you see Oracle ERP module (banking and Finance). Can you share details?
Sharing image for Oracle ERP
ERP for bank is Core banking which is Flexcube.
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Thanks, that eases my doubts! Also, my bad…Oracle does not seem to have banking but Oracle FInancials in ERP suite…SAP does have a SAP Banking module…not sure how successful they have been with it…
Naive question - Would the parent’s acquisition of Tiktok have any impact at all on the Indian subsidiary? I personally dont think so but just wondering if I am missing something?
@Tauqeer Can you please explain what you mean by ‘skipped dividend’?
From the previous post, I see:
So it is a bit confusing about dividend being skipped.
They skipped dividend last year
Initially had a doubt about the business of listed OFSS and that is clear now to some extent, in the sense that it does not own the Oracle Fusion ERP but this company is erstwhile I-Flex which owns the product Flexcube which is used in Banks.
I was digging deeper into Financial services businesses of Oracle and found out that they have platforms and products for Insurance space covering Life, General/Health insurance etc. Can anyone confirm if these products/platforms are part of listed OFSS?
Thanks
@anjeshv4 has already stated so skipping,
The point I was trying to make is “why earning was not distributed to owners in that year” and with no explanation.
i am not able to convince myself what stops them to repeat similar behaviour. They are not growing at scorching pace that share price will take care neither they have any reinvestment plans that was communicated so i gave a pass.
Pls correct me if wrong, what I learnt is that this management does not distribute dividends evenly every year but eventually does as a lump sum, looks like every alternate year. Now, why it does that I am not aware but am curious to know. Div yield of 6% is therefore a misnomer because its not a every year affair. As long as they follow the symmetry of even every alternate year, long term investors would be taken care of…but question is why this type of affair? Thanks
They skipped dividend only in 2019. Since 2014, they’ve given good dividend every year.
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Disc: Invested around 3000; 4% of PF
Oracle Fin has been a slow grower for last decade but decent valuations and winds of change make it a very compelling story. It can be a solid slow compounder with low risk and volatility.
Let us look at the story:
- Second largest banking software product company globally. Temenos being number 1.
- A pure play product company with a global brand.
- Based out of low cost country India.
- Hedged perfectly against currencies and geographies. 1/3 revenue each from Americas, EMEA and APAC.
- Permanent shift to digital channels due to covid.
- Some of the banks systems are struggling to cope up, including HDFC bank. RBI bars HDBK from launching new digital products.
- RBI says today banks/ lenders must invest more in IT Capex.
- Above points must be true globally so going forward we may see much higher growth in banking IT infrastructure. So OFSS may show higher growth in next few years.
Now comes even more interesting aspect valuations:
- Comparison with Indian IT services
Companies like Infy and TCS are valued between 25-30 PE. They also own banking products and BFSI services is big chunk of their revenues. OFSS growth in last 2 Q is closure to IT services growth but it still trades at PE of 15-16 even though it a pure product play. - Comparison with Market leader Temenos
Temenos trades at 9-10 times sales (P/S) and 66 times PE.
OFSS trades at 5 times sales and 15-16 PE.
Temenos is about 1.3 times OFSS on revenue basis.
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Does this mean the Market leader Temenos has very poor margins and profitability ratios as compared to OFSS as its sales is 1.3 times OFSS but PE is more than 4 times OFSS?
While I agree to all your points but a single sector company would involve some discount compared to valuations of other diversified IT companies. The benefit of being a product based company and Oracle owned MNC should ideally help to reduce that discount as much possible.
Do you know if Insurance Products of Oracle lie within OFSS or not? In future, Insurance can present good growth as globally Insurance companies become bigger and more ajile & digital.
Disc: Invested. Not a buy/sell recommendation
Temenos EBIT margin is around 32% and OFSS EBIT margin is around 48%.
A single sector discount is interesting concept as it helps risk but typically a domain product company will loose its USP if it is into too many areas. OFSS can not get into other areas as parent will already be present in other domains.
Insurance in western world is already a very mature vertical. Banks IT systems are a lot more complex due to transactions, fund transfers, AML and so on.
Some of the products does cater to insurance. But I am not sure if they provided complete stack for insurance.
Oracle Banking Enterprise Product Manufacturing is a comprehensive suite of product master data management capability for the banking domain. It provides functionality to define financial products under current accounts and savings account, loans, term deposits, credit cards, investment and retirement accounts and insurance
Oracle Financial Services Analytical Applications for Customer Insight suite of products comprise of Banking & Insurance Performance Analytics
Also, from services perspective(10% of revenue) they cover Insurance.
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On Temenos, indeed OFSS has a much better profitability profile. It could be because it operates from India.
Agree on Insurance being a mature vertical in Western world and also that Banking products would be more complex.
The way I see it is that Insurance is a very mature business in developed economy and in many geographies it has stagnated and even declining. In such case, the player which grows better than industry needs a solid differentiation and that in many cases comes as a product innovation, new type of products - you would see such examples even in developing economy like India where these insurance companies keep launching new kind of products be it in Term, combo of Term/Health, Annuities and even General Insurance. A key differentiator in smooth and fast execution of these would be the digital platforms of these organizations. Also, these companies would rely more and more on Analytics, Big data etc to rightly price their Term policies for example.
So in short if OFSS is the MAIN INSURANCE play of Oracle, then I would see it as a huge icing on top for long term. I went through multiple websites including that of Oracle and can see they have a solid Insurance suite but I could not infer if it comes under listed OFSS.
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Agree.
But undervaluation is evident in what it has to offer just for banking.
If we take SAP, it trades at 25 PE.
Its parent Oracle trades at 19 PE. Parent Oracle is under cloud due to threat to its cash cow biz of databases.
ERP company Epicor was sold by PE KKR at 6 times revenue. It is same size as OFSS.
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