Potential Long Investment: Systems Computer Technology Corporation October 21, 2003 Presentation by: Felise Agranoff MII Vice President Senior Analyst
What does SCT do? Revenue is achieved through software licenses (15%), maintenance and enhancements of software (32%), software services (31%) and outsourcing systems expertise (21%). Product Offerings are for the higher education market and include Administrative Systems, Academic Solutions, Portals, Self-Service Solutions, and Enterprise Integration Solutions. Company s objective is to provide Universities and Colleges with a centralized ERP system so that the school can operate most efficiently and retain a competitive student body.
Industry Analysis High Barriers to Entry for a new Player High Economies of scale, Brand Identification, High Switching Costs, High Capital Requirements, Importance of Experience Effect Power of Buyers is Low Many important buyers, Very High Buyer Switching Costs, Low Buyers threat of backward integration due to costs Threat of Substitutes is Minimal Trend in market is to begin outsourcing system needs. Competitors PeopleSoft, Datatel, Oracle, SAP, Jenzabar
SCT s Product Pipeline SCT Banner (Less Complex Institutions) Oracle Based, Consists of student information, advancement, human resources, financial aid, faculty and advisors, finance, and other capabilities. SCT Matrix (Complex Business and Organizational Requirements) Microsoft Based, Consists of Marketing, student aid, billing, and academic services. SCT PowerCampus (Small Institutions) Microsoft based administrative system. SCT Luminus Portal Product that unifies, extend and manage a personalized digital campus for students.
Investment Thesis Point 1: Growth in software licenses, which will also increase revenue generated from software support, and maintenance/service. Point 2: SCT s new focus on the higher-education market is unmatched in its industry and allows it to create a moat. Point #3: Most universities outsource their software systems and utilize maintenance and support services.
Point 1 Growth in software licenses, which will also increase revenue generated from software support, and maintenance/service. SCT Matrix and SCT PowerCampus products have much potential for growth in the marketplace. Matrix can be easily tailored to complex institutions. PowerCampus is a good fit for smaller institutions. Products are Microsoft-based which makes the software packages easier to use and less costly. SCT Luminus is one of the only all-inclusive portal products in the marketplace and will be viewed as a good solution for the higher education market. William Godfrey of Webster University, SCT s product was the only viable solution for an institution of our size, because of the scalability of the components of the Luminis bundle and it's powerful integration tools.
Point 1 ctn d Growth in software licenses, which will also increase revenue generated from software support, and maintenance/service. Ahead of the game in meeting institutions growing needs through add-on solutions. Example: Newfront acquisition allows SCT to solve institutions problems with new Student and Exchange Visitor Information System (SEVIS) regulations. Most current customers are happy with SCT. This is proven by the comments of many chief technology officers at various institutions. Universities need to have centralized systems so that they can operate most efficiently and attract students to their University.
Point 2 SCT s new focus on the higher-education market is unmatched in its industry and allows it to create a moat.. John Casey at Davidson College says, There is no comparison between Banner and Oracle or Peoplesoft. Neither Oracle nor PeopleSoft produces solutions appropriate for an institution our size, John Stuckey of Washington and Lee. John Lawson of Tulane, We didn t even look into Datatel as their largest customer is not even half of the size of our institution. SCT Banner was more cost efficient than all competitors except Datatel. Our decision between those two vendors hinged on the emerging Virginia state standard for higher education institutions " said Chip German of Mary Washington College.
Point 3 Most universities outsource their software systems and utilize maintenance and support services.. Ken Pflueger of Pomona College, We licensed the software and have an ongoing software maintenance agreement; otherwise we would not get the software upgrades, patches, etc. This is particularly critical in financials and financial aid where changes in the software must keep pace with changes in federal and state regulations. William Godfrey of Webster University, In the past, we have purchased products and then become experts on it, providing support for it inhouse, and often modifying it extensively for our needs. However, as demand for IT resources grows, we are experiencing a shift toward increased utilization of vendors' consulting and support resources.
Market Cap: 486.98M FCF ttm: 1.40M SCT Financial Statistics PE Ratio: 39 (Peoplesoft=37, SAP=35.3, Software Industry Avg= 27) Debt/Equity:.14 Current Ratio: 3.367 Short Interest: 0.92%
Valuation Conservative DCF Valuation: $14.72 Terminal Growth Rate of 3% Revenue Growth in 2002 of 15%, followed by declining growth forecasted until 2011. Expenses will stay at a consistent percentage of revenue. PPE will increase at 3% ( even though it has been decreasing.) Current Price: $14.50 Stock price jumped from $11.08 on Oct 1 st due to positive Press Release.
RISKS Consolidation in the Industry will threaten SCT s ability to succeed due to economies of scale. After implementation, the Matrix product will not be viewed as successfully by Tulane and the University of Arizona. Other players will launch products that will be well-received in the market. The company s marketing campaign will not be sufficient to overcome competition. Public University budget cuts will hurt revenues. Corporate Culture Clash in SCT/PowerCampus Merger might downgrade SCT s reputation in the market.
Value Added Research Contacts SCT Clients Matrix Banner Luminus PeopleSoft Clients Datatel Clients Oracle Clients Jenzabar Client Universities who have in-house ERP systems. Higher Education IT Consultant Datatel Sales Account Manager SCT Head of Marketing Outside Member of Board of Directors
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