12:58 PM EDT, 07/05/2024 (MT Newswires) -- This week, OpenText announced a cost reduction plan targeting US$150 million of net cost savings (~6% of FY24 opex) through a net reduction of 400 positions (1.7% of 23,400 current headcount). The company plans to cut 1,200 positions with US$200 million of annualized savings, US$50 million of which will be reinvested into 800 new roles across Sales, Professional Services, and Engineering.

The restructuring will be completed Q1/FY25 (quarter ended Sept 30), with US$60 million of restructuring costs to be recognized in the quarter. The company will provide more details when it reports Q4 in August. Net cost savings imply 8% upside vs. FY26e adj. EBITDA, 10% upside vs. FY26e adj. EPS, notes RBC. The restructuring appears to be incremental to OpenText's FY25 preliminary outlook provided last quarter, adds analyst Paul Treiber.

OpenText is trading near the low-end of its historical range at 7.5x NTM EV/EBITDA and 8.2x NTM P/E, well below peers at 20x and 32x respectively. The restructuring is the first step in re-building investor confidence, as it aims to improve OpenText's near-term profitability, while still allowing for new investments to drive organic growth to 2-4% by FY27, Treiber notes.

Open Text ( OTEX ) is rated Outperform, with a US$45 target.

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