With numerous legendary investors having a position in this company, is it right for you?
Company Description:
Teradata Systems is the largest independent high-end data warehousing software / hardware provider for large companies. Its products include software, hardware and customer support.
It was founded in 1979 and gained recognition after Wells Fargo signed up with them. In 1991, Teradata was acquired by NCR and it was spun off in September 2007.
The $20 billion data warehousing market primarily consists of Oracle (40% market share), IBM (23%), Microsoft (16%) and Teradata (11%). Generally, TDC sells one of their systems for $1.5 million and then charges a fee on an annual basis depending on the customer needs. As there massive barriers to entry to the business, customers do not like switch vendors as there are high costs associated with such a move. Thus, TDC has 85% recurring revenues. No one customer accounts for more than 5% of revenues.
Even with the giants in the industry, TDC continues to win business as was shown with taking on new clients like Home Depot and Amazon.
Attractive Industry
Management has indicated that it can grow 7% to 9% with the industry and increased market share. IDC expects the industry to grow at 7.4% CAGR for the next five years so management’s projections are not unrealistic.
Since organizations take a long time before making a decision on data warehousing, once the firm chooses someone it is difficult and rare to see them shift to a competitor. TDC is able to distinguish itself by offering the entire suite products, not just one aspect. Most competitors fall into the ladder camp.
Valuation
With a 171 million shares outstanding, TDC sports a $4.5 billion market capitalization. It has an earnings yield over 8% and its free cash flow yield is nearly 10%. Additionally, the company has $559 million in cash and no debt. Furthermore, its gross margin is trending higher since it was spun-off from NCR in September 2007. With its free cash flow, the company has been buying its shares.
Industry Consolidation and Conclusion
TDC has all the characteristics of a takeover candidate. The two year anniversary of its spinoff has ended, thus increasing the likelihood of an acquisition. At the time of the spinoff, it was rumored that SAP was interested in purchasing TDC but obviously that never happened. Oracle, IBM, Hewlett Packard, and SAP are all potential suitors for TDC.
So what would a strategic buyer pay for TDC? In 2007, IBM and Oracle were acquiring similar businesses near 4x sales. Obviously the macro environment has changed a good deal since then however with TDC trading at 2.6x revenues, the upside is still promising.
Company Description:
Teradata Systems is the largest independent high-end data warehousing software / hardware provider for large companies. Its products include software, hardware and customer support.
It was founded in 1979 and gained recognition after Wells Fargo signed up with them. In 1991, Teradata was acquired by NCR and it was spun off in September 2007.
The $20 billion data warehousing market primarily consists of Oracle (40% market share), IBM (23%), Microsoft (16%) and Teradata (11%). Generally, TDC sells one of their systems for $1.5 million and then charges a fee on an annual basis depending on the customer needs. As there massive barriers to entry to the business, customers do not like switch vendors as there are high costs associated with such a move. Thus, TDC has 85% recurring revenues. No one customer accounts for more than 5% of revenues.
Even with the giants in the industry, TDC continues to win business as was shown with taking on new clients like Home Depot and Amazon.
Attractive Industry
Management has indicated that it can grow 7% to 9% with the industry and increased market share. IDC expects the industry to grow at 7.4% CAGR for the next five years so management’s projections are not unrealistic.
Since organizations take a long time before making a decision on data warehousing, once the firm chooses someone it is difficult and rare to see them shift to a competitor. TDC is able to distinguish itself by offering the entire suite products, not just one aspect. Most competitors fall into the ladder camp.
Valuation
With a 171 million shares outstanding, TDC sports a $4.5 billion market capitalization. It has an earnings yield over 8% and its free cash flow yield is nearly 10%. Additionally, the company has $559 million in cash and no debt. Furthermore, its gross margin is trending higher since it was spun-off from NCR in September 2007. With its free cash flow, the company has been buying its shares.
Industry Consolidation and Conclusion
TDC has all the characteristics of a takeover candidate. The two year anniversary of its spinoff has ended, thus increasing the likelihood of an acquisition. At the time of the spinoff, it was rumored that SAP was interested in purchasing TDC but obviously that never happened. Oracle, IBM, Hewlett Packard, and SAP are all potential suitors for TDC.
So what would a strategic buyer pay for TDC? In 2007, IBM and Oracle were acquiring similar businesses near 4x sales. Obviously the macro environment has changed a good deal since then however with TDC trading at 2.6x revenues, the upside is still promising.
