Temenos profit warning weakens Misys

Temenos profit warning weakens Misys

A profit warning at Swiss core banking vendor Temenos has hit UK rival Misys, as nervous investors fret about the viability of an FIS-led takeover bid in a depressed market.

Shares in Temenos plunged 18% overnight as the vendor revised its guidance sharply downwards on weak Q2 license sales. Temenos is now expecting like-for-like licence growth of 5% to 10%, against its previous outlook of 19% to 24%.

Based on preliminary estimates, the company expects licence revenue for the quarter to be within a range of $38.5m - $39.5m, implying like-for-like growth of -2% to 1% and reported growth of 12% to 15%.

Commenting on the trading update, new Temenos CEO Guy Dubois states: "Currently, the uncertainty facing banks, particularly in Europe, is impacting their willingness to take decisions about large capital projects. As a consequence, we are seeing a longer sales cycle and we have taken the prudent decision to lower our full year licence outlook."

As the wider market punished Temenos with a share sell-off, City analysts speculated on the implications of the news for Misys, which was approached by US fintech house FIS about a possible take-over last month.

George O'Connor at Panmure Gordon said: "We expect Misys shares to come under further pressure today in the wake of the Temenos profit warning last night. While customer base overlap is limited, the pair will compete on each new core banking bid. Misys shares have been weak, as investors fret that the deal with FIS will be scuppered by current capital market uncertainties and FIS less keen on adding to its $5bn debt. In truth, the lack of news simply means no news - however, fear has overtaken greed and hot money will continue to come out of Misys."

Rather than quashing the deal, however, O'Connor and others feel that the news from Temenos may prove a boon to FIS, lowering the premium in any sale.

As analysts at Jefferies noted: "Misys is far less dependent on new name business, focusing on selling upgrades. We believe that Misys bid discussions will come to fruition and, consequently, the weakness caused by the Temenos profit warning has created an outstanding buying opportunity."

Panmure's O'Connor echoed the sentiment: "Expect FIS to be whooping it up today - it will see Misys as a strategic asset and now has the opportunity to pick it up for less. We reduce our target price to 398p from 415p, as we reduce our takeover premium from 25% to 20%."

Both Misys and FIS report their results next week.

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