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Oracle Financial Services Software (OFSS) reported a weak first quarter compared to both the previous and the same quarter last year. On a YoY basis Revenues declined by 8% and sequentially Revenues declined by 14%. On a YoY basis PAT showed a growth of 4% owing mainly to a favorable forex scenario this quarter. Since the company doesn’t hedge its forex exposure, the other income number usually tends to fluctuate a lot each quarter. The company has a lot of board members from the Parent’s lineage. This might bring better focus to how the company will be run as part of the Oracle suite of products, rather than just a standalone banking software product company. But that is not the best part. This is, Oracle Inc (the parent company) owns an 80% stake in OFSS. As per the new law of mandatory 25% public shareholding, OFSS falls short by 5%. That means, either the parent company will have to shed 5% of its ownership in the company or it can choose to buy up the leftover 20% by offering a really attractive price to the existing shareholders. The latter seems to be a more probable alternative because it hasn’t been long since the Parent has increased its stake in the company. Regulations do have a way to catch up and upset restructuring plans, but this opportunity to take the company private is also possible. Previously, Oracle Inc’s offer price was in the range of Rs. 2,200 per share. So the existing shareholders will demand a premium to that price as well. How this turns out is anybodys guess. But it sure is an attractive possibility to HOLD on to the business. We recommend a HOLD,” says Parag Parikh Financial Advisory Services
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