|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Compuware Corp. Might Be Leading the APM Industry
Posted by: Damian Illia (IP Logged)
Date: April 14, 2014 05:22PM
Since 1973 Compuware Corp (CPWR) has been providing software solutions both on-premise and through a software as a service (SaaS) model, as well as professional technical services related to mobile application developments and mainframe systems. The company reported revenues of $944.5 million in fiscal 2013, working through four segments: Performance Management (APM), Mainframe, Changepoint and Uniface. Through the APM segment Compuware provides services to maximize efficiency of web, non-web, mobile, streaming and cloud applications. Mainframe solutions are designed for organizations which require high developer productivity and enhanced service quality at lower costs, and through Changepoint it provides Professional Services Automation (PSA) and Project Portfolio Management services (PPM). Uniface, a rapid application development platform, creates renews and integrates enterprise applications. Currently, more than 7,100 companies, including many of the world's largest organizations, depend on Compuware and our new generation approach to performance management to do just that.
Results for third-quarter 2013 were above estimations regarding earnings, but below average in revenue. The challenges presented by the European market, plus the inactive IT spending have affected the firm’s revenues. A restructuring plan is on track, with the recent divestment of Changepoint, Professional Services and Uniface business units for $112.0 million in cash to M4 Global Solutions Holding B.V. during Jan 2014. These efforts are directed towards enhancing the core business over the long run, developing an innovative product pipeline at reduced costs to boost profitability. Nevertheless, the company faces intense competition from peers such as International Business Machines Corp. (IBM), BMC Software, Hewlett-Packard Company (HPQ), Accenture plc (ACN), and Computer Sciences Corp. (CSC).
Compuware is premium provider of system management software, with a large –and growing- product portfolio. The effective convergence and integration of cloud, social collaboration, and mobile technologies, are expected to stimulate the company’s revenue source. Recently, leading analyst firm Ovum has recognized Compuware Corp. (CPWR) as market leader in Application Performances Management, being thus, presently, the only APM vendor to be consistently recognized as market leader. Ovum stated: "Compuware should be on the shortlist of enterprises looking for a state-of-the-art APM solution." The fact that Compuware APM is light, smart and proactive makes it appealing to customers, as well as suitable to manage the complexity of today’s challenging applications.
Recent focus has been put in expanding its reach in the mobile applications market and strategic acquisitions and partnerships. The ongoing restructuring plan, with the strategic divestment of Changepoint, Professional Services and Uniface business, aims to save an amount of approximately $120.0 million on an annual basis, while focusing on the core business. Moreover, the improving domestic economy and overall macroeconomic environment within international markets are likely to drive demand in the near term, helping Compuware boost sales and profitability. IT spending is expected to rise to $3.8 trillion in 2014, increasing 3.1% compared to 2013.
The addition of dynaTrace in 2011 is expected to increase subscription fees and the partnership with IBM is estimated to help Compuware penetrate the growing business analytics market over the long term. Furthermore, the firm has engaged in possible buyout discussions with private equity funds such as Blackstone Group LP, TPG Capital LP, Vista Equity, Thoma Bravo and Golden Gate Capital.
Acquisitions present positive growth opportunities for the company, nevertheless, integrations always imply risks and costs. Frequent acquisitions might distract management from evaluating sway of organic growth, as well as impacting negatively the firm’s balance sheet.
This industry is indeed a competitive one, and Compuware faces some challenges, and continued pricing pressure is expected to hurt company’s margins. Focus on innovation in software is a key element to attract new customers as well as to provide existing clients new services. There’s no doubt an increased expense will be hurting profitability in the near term, however Compuware reported positive third-quarter fiscal 2014 earnings of $0.15 per share, surpassing analysts’ estimations.
Analysts think the company’s major headwind is its technology concentration. The fact that most of Compuware’s software products are designed to work only on IBM and IBM-compatible mainframe computers generates an overdependence that hooks software revenues to the continued use of IBM products. Moreover, should the technology be changed, it would involve a significant investment from Compuware. This dependence might rationalize growth prospects.
Still, the firm’s initiatives are likely to improve margins and help Compuware counter the strong competition panorama. Expecting APM to grow 9.0% in 2014 and with new program wins and enhanced product pipeline, Compuware expects revenues in the range of $915.0 $925.0 million.
Disclosure: Damian Illia holds no position in any of the stocks mentioned.
Stocks Discussed: CPWR, IBM, HPQ, ACN, CSC,