Oracle Financial Services

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Yes I am working in banking domain.

OFSS presence is good in Africa and middle east. There are close to 700 clients in 140 countries.

Only tough competitor is Infy Finacal or T24 Temenos

Core Banking software usually do not get upgraded much due to security reasons.

however with new implementation, OFSS is pushing bank towards newer version and lot of existing architecture has been changed.

But Most of time I hear from client that OFSS support is not upto the mark

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License and support, support is critical, is this a serious issue as per you or a general perception clients usually have for vendors?

Also is OFSS new architecture pushing cloud and SaaS products?

Do they have proper support from parent Oracle and are they important in Oracle’s overall scheme of things?

What is vision of Oracle USA for OFSS?

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  • Growth : Third consecutive weak quarter for OFSS with US$ sales declining 5% YoY after flattish trajectory last two quarters. It is not uncommon for mid-caps to see revenue declines when the cycle is turning, and growth at large caps is also peaking. This will bring to the fore the concerns on OFSS losing share to other platforms (like Temenos which is used by LTI’s BFSI business). Note that OFSS did not participate meaningfully in the upcycle either with their best growth in the post-pandemic quarters being 7% versus 15-35% for most peers incl. large caps.
  • Profitability : The story of sharp margin contraction has been all-pervasive and OFSS has not managed to buck the trend either. Its EBIT margins contracted 540bps YoY and it seems profitability for OFSS is gradually reverting to pre-pandemic margins – FY19 margin of 42% versus FY22 at 46%. This will be painful for earnings as was the case this quarter where EBIT declined 12% YoY. There are multiple headwinds here 1) steep talent costs with high attrition 2) stingy client behaviour in times of weak macro-3) resumption of travel and visa costs.
  • Headcount: Remains weak and grew 4% YoY this quarter; this came after four quarters of YoY headcount declines. Note that OFSS’ headcount is flat since pre-pandemic levels versus 30-70% higher headcount for most mid-cap peers. Partly this is attributable to the business mode where licensing is 20% of sales. Even adjusted for that the weak headcount addition suggests a lack of growth visibility.
  • Attrition: Attrition remains elevated at 26% and is among the highest in the sector. It did cool of a bit sequentially and may moderate if we get into slowing growth rates for peers. For any slow-growing business, finding and retaining good people is hard especially when successful peers are seeing a 20% attrition.
  • Deal wins : The company won new license wins of US$27mn which was down 30% YoY. Quarterly wins have some lumpiness and the TTM trends here are more encouraging at 10% YoY. This hopefully translates to higher growth rates in the future although in tough times, clients often delay projects.
  • Valuations : OFSS trades at a one year forward multiple of 15x which is 25% below its 10-yr average. It also has a sector leading dividend yield of ~6%. While undemanding valuations versus peers and the dividend yield give comfort, note that OFSS has also corrected 20% last six months. The only consolation is that some mid-cap peers have corrected by 30-40%. On the flipside, a lot of large-cap and mid-cap IT stocks have returned 1.5-4x returns last five years while OFSS has moved sideways earnings its investors only the mid-single digit dividend yield. My sense is that the next 3-year IRR from the stock should be sub 10% given the 6% dividend yield plus low single-digit earnings growth. The argument for the multiple to mean revert (sustainably) to the 10 average lacks merit given weak business performance. But it does limit further downside risks.
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Nice analysis of result. This is not going to be a fast grower. But anything north of 10% is good return.

One interesting deal in press release was “A wireless network provider in the US has chosen to implement Oracle Financial Services Lending and Leasing.”

I think this may open up a market in Lending and Leasing in Telecom and other equipment and industrial segments, beyond banking.

A read for those interested

This is offer for especially telecom

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I had a small discussion with someone working in banking products since a decade or so. He had worked on multiple products as his main strength is business/functional knowledge. So he must have had an unbiased view. He had worked on Temenos, Oracle, Infosys and TCS products…

Interesting thing he said is that all products are good. He did not say that one is better than other. Neither did he mention that anyone had any peculiar strength which other did not have. All were upgrading to be part of digital. No special Saas etc. for anyone that other did not have etc.

What this made me feel that - Is banking product business more like say a Paints business? Where more than quality of product, the insight about when which customer would need what and you need to be present there to enable that matters more?

In IT context, I would relate this distribution strength to partnerships with system integrators, like how someone mentioned above that Temenos has partnered with LTI - One of fastest growing and most aggressive Services company?

In this context, does anyone have insight that which system integrator/service company has partnership with each major product and specially with OFSS? How has earlier partnerships of OFSS fared and how good they have been in this approach?

TCS & Infy banking products seem to have big benefit of having in house integrators and also huge opportunity to cross sell…

Would be good to know others thoughts here…

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There is no clarity on the synergies of Oracle India Vs Oracle Financial services.with all the Products of OFSS now migrating to Cloud what is the revenue sharing between the two no data. With strong parentage why there is no growth ? Though they continously deny there is no proposal of delisting the attitude to supress the share price seems to intention of delisting at an opportune time ?

So investors for the time being can enjoy the dividends and wait for the corporate action of delisting !

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Hope below answer helps

  1. Oracle is a major player in bank software market. and support is ok but not the best. So hugh scope for ofss growth

2.yes, ofss is moving to cloud and other architecture. recently they added a moduoe for blockchain

  1. Yes Oracle corp have a good profit from Ofss

4.Recently many of my contacts were part of big corporate projects in that north America region

I am confident ofss share will grow in coming future. Also good time to buy now

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Ofss shares are showing lot of interest from investors recently.

I believe with current valuation and company reports, it is a good buy to enter and exit later with profit in short to medium term.

what you all think? @all

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Best time was under or near 3000 with close to sure shot 6% yield and some capital gain over a short period of time, No one can predict where the markets will go or this stock would but personally i would wait for dip as nifty has touched 17000 currently ,any news specially related to the Usa would effect the stock.If you have no position a partial position would be great as the valaution are still nice and you get the FOMO factor.

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Attended AGM today: Based on Share holder speakers Queries management responses: 1.Oracle Corp Parent CO advantage gives them direct entry into big ticket clients .with Zero cost they use the overseas offices of Oracle Corp without any overhead costs. 2. They believe in margins and value than volume. 3.Migration of clients from legacy Software to Cloud is taking some time. Revenue sharing to Cloud platforms they are yet to work out. 4.Huge cash RESERVES are kept for any attractive valuations available for acquisitions in Startup space. 5.No change in dividend Policy and will be continued. So my reading is the Parent Company is very conservative in approach and will take UP only High margin projects. We can not expect high Growth but dividends are going to be much attractive with a possibility of Special dividend also next year. As of now doesn’t look like any delisiting in near future!

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This could be non listed Oracle entity in India

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oracle India is Oracle Corp USA subsidiary but not under OFSS group :+1::+1::+1:

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Thanks for information. Helps to strengthen my conviction.

Increased my position by 10% in correction. Will look to add more if more correction.

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@nav_1996 I am curious what is the attraction to OFSS besides the chance of delisting.

  1. From the 2022 IBSi Sales League Table - No of Flexcube wins in 2022 (and the preceding years). These are new wins.

Flexcube OracleFSS 0* (0*, 0*, 0*, 0*, 0*, 28, 27, 15, 17+, 28, 32, 33+, 39+, 20, 43, 37,
36)

Looks like OFSS has stopped selling Flexcube at all to new customers. Not sure they even have a Flexcube sales team.

  1. I have heard (not confirmed) that the new generation Oracle Banking suite is sold under the parent Oracle and not OFSS. Though most of the people involved in Oracle Banking seem to be from OFSS.
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From Annual Report (latest):

your Company acquired new customers across all business areas - Corporate Banking, Retail Banking, Modern Risk and Finance, and Financial Crime and Compliance Management. Simultaneously, we have also been growing business from our existing clients through targeted cross[1]selling and upselling. Our continued investments in building organic SaaS solutions are now starting to bear fruits. This year, we signed our largest-ever multi-year SaaS deal with a tier-1 US bank

Besides, in AGM hinted might use cash for acquisition. The dividend was actually reduced by Rs. 10, so let us see.

Personally feel here is maybe less downside at this price / valuation. So, just tracking what happens next.

Disc: invested

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oracle work on platinum gold partner model, these company sell banking product to the client.

Kindly let us know more about IBSi data .How to use it?

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@All

It would be helpful if someone can explain some techical chart for OFSS.

Despite good valuation, price is falling down and lot of selling. :frowning: