Huge dividend, pickup in licence fees buoy Oracle stock

 

Oracle Financial Services Software Ltd’s bumper dividend of over Rs.4,000 crore has revived interest in the stock. Ex-dividend, the company’s shares settled around Rs.3,485 on Wednesday, which is about 18% higher than the level of Rs.2,950 per share three months ago. Including the dividend of Rs.485 per share, the three-month return for shareholders is as much as 35%. 

Apart from the surprise dividend payment, which came after a gap of eight years, Oracle also announced better-than-expected results for the quarter ended June 2014. Licence signings across the company’s global operations picked up significantly, resulting in new signings worth $32 million in the April-June quarter, up 82% from a year earlier

In fiscal year 2013-14, new licence fees had fallen by 18%. Revenue and operating profit grew by 19% and 46%, respectively, last quarter on a year-on-year basis. It must be noted here that the large cash outgo will result in a significant drop in interest income. Analysts at Dolat Capital Market Pvt. Ltd said in a note to clients that other income is estimated to fall by 40% in the next fiscal year and profit after tax is estimated to be hit by 10%. But the outlook for the core business looks brighter. 

The analysts said in the note, “The strong licence fees in the June quarter and the dividend announcements are positive, both from the perspective of revenue growth as well as shareholder returns. While the stock has rallied and looks fairly valued at 22 times estimated FY16 earnings, we believe the stock still has potential if it delivers another strong quarter of licence revenues.” 

Oracle Financial has traded at fairly high valuations, given the expectation that the parent company will make an open offer to buy out minority shareholders. While this cannot be ruled out, the recent jump in share price will make the acquisition even  more expensive.

Prashant Sharma

PGDM-IIIsem

Oracle Financial Services Software Ltd’s bumper dividend of over Rs.4,000 crore has revived interest in the stock. Ex-dividend, the company’s shares settled around Rs.3,485 on Wednesday, which is about 18% higher than the level of Rs.2,950 per share three months ago. Including the dividend of Rs.485 per share, the three-month return for shareholders is as much as 35%. Apart from the surprise dividend payment, which came after a gap of eight years, Oracle also announced better-than-expected results for the quarter ended June 2014. Licence signings across the company’s global operations picked up significantly, resulting in new signings worth $32 million in the April-June quarter, up 82% from a year earlier. In fiscal year 2013-14, new licence fees had fallen by 18%. Revenue and operating profit grew by 19% and 46%, respectively, last quarter on a year-on-year basis. It must be noted here that the large cash outgo will result in a significant drop in interest income. Analysts at Dolat Capital Market Pvt. Ltd said in a note to clients that other income is estimated to fall by 40% in the next fiscal year and profit after tax is estimated to be hit by 10%. But the outlook for the core business looks brighter. The analysts said in the note, “The strong licence fees in the June quarter and the dividend announcements are positive, both from the perspective of revenue growth as well as shareholder returns. While the stock has rallied and looks fairly valued at 22 times estimated FY16 earnings, we believe the stock still has potential if it delivers another strong quarter of licence revenues.” Oracle Financial has traded at fairly high valuations, given the expectation that the parent company will make an open offer to buy out minority shareholders. While this cannot be ruled out, the recent jump in share price will make the acquisition even more expensive

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