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Move over RIM, Open Text's got the spotlight

The Open Text building in Waterloo, Ontario.

Kevin Van Paassen/Kevin Van Paassen / The Globe and Mail

Research in Motion, once hailed as Canada's one true technology god, has long dominated our tech conversations.

Yet lately our tone has changed, and so have our attitudes. A few years ago, no one wanted to hear about another tech company, whereas today Open Text , another Waterloo, Ont., sensation, is getting some buzz.

Make no mistake, Open Text has been around for a while. It's just that the company is finally getting the attention it deserves. Open Text has put up 30 per cent annual earnings growth for the past five years, and that performance is getting noticed by investors who are less and less preoccupied with RIM .

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But even if you had heard of Open Text before, there's a good chance you didn't really know what the company does. That's because it business plan is filled with phrases like "enterprise content management systems."

Cutting out the jargon, Open Text's main business line is built around storing and sharing corporate data. Maybe a company wants to send its data to the cloud, or share it across teams, or find new ways to analyze and sort it. Open Text does all of that, and in case you haven't heard, all of these features are supposed to be the future of tech.

Because our society is so technologically advanced and memory is so cheap, we've built endless reams of data. Until recently, though, we didn't really know what to do with it. Companies like Open Text are trying to explain the myriad options and there is believed to be such growth potential that Hewlett-Packard recently shelled out $10.2-billion (U.S.) for European software company Autonomy.

At Open Text, the business has been built through acquisitions. (Some of the latest include Global 360 and Metastorm.) And as the company's grown, it has also built strong partnerships with firms like SAP, which has given Open Text both credibility and growth opportunities.

"What we continue to hear from many of the company's important partners is that the broad-product momentum continues to grow and to that point, we are surprised by how much opportunity Open Text has, even with existing customers," notes Cormark Securities analyst Richard Tse. "This opportunity is further amplified by a growing portfolio of products care of recent acquisitions."

Mr. Tse is extremely bullish on the stock, and most of his peers are too. Their commentary is particularly important right now because the company reports earnings after the market closes on Wednesday, and most people expect the growth story to continue. That's because both its partners and comparable companies are still growing. SAP pre-announced strong third quarter revenue, and IBM's software revenue grew by 8 per cent year over year.

Although Open Text's stock has come off lately, much of it can be attributed to a broad market correction. Analyst Kris Thomson at National Bank Financial doesn't expect the shares to fall much farther because Open Text is trading around what he says is a $50 maintenance value. In other words, there's only upside.

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However, there is reason to worry that the stock could get overheated. BMO Nesbitt Burns analyst Thanos Moschopoulos points out that Open Text's multiples are already in line with comparable enterprise software companies, so it is only worthy of something higher if its growth outperforms.

Even if that doesn't happen this quarter, this company is surely one to watch.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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