2018-01-08

Temenos – A cut above the rest

The concept of temenos in classical Mediterranean culture is an area reserved for worship of the gods. Some authors have used the term to apply to a sacred grove of trees, isolated (i.e. cut off) from everyday living spaces, while other usage points to areas within ancient urban development that are parts of sanctuaries. For example, the Acropolis of Athens is "the holy temenos". The word derives from the Greek verb τέμνω (temnō), "to cut".  Choosing such a name for your venture doesn’t show a lack of ambition, does it?  And that’s what George Koukis, the Greek founder & Chairman of the Board of Temenos until 2011, chose.

As I was strolling down memory lane, I looked back at some of the corporates invested in from the very start that “brought it on” for us and delivered the goods. I have had a few champions over the past 10 years. I have been voluble about Emmi, but rather shy (too shy!) about Temenos whose stock is a 6-BAGGER!  Please forgive my omission! I guess it was an easier task to talk about Caffe Latte, Swiss cheese & other smart dairy products than IT.  But let’s now make amends & pay tribute!

Temenos (www.temenos.com), headquartered in Geneva, is a market leading software provider, partnering with banks and other financial institutions to transform their businesses and stay ahead of a changing marketplace.

“Temenos only creates software for banking and finance. And we've been doing it for more than 20 years. This makes us true specialists with deep domain knowledge and razor-sharp focus. We place our clients at the core of what we do. Everything starts and stops with our clients' goals – we can't meet our goals without meeting theirs. Over 2,000 firms across the globe, including 41 of the top 50 banks, rely on Temenos to process the daily transactions of more than 500 million banking customers”, states their website.

The group is an XY generation kid (a little over 20 years old) with a unique corporate culture. “We pride ourselves on seeing things differently from everyone else. We embody a culture of openness and meritocracy that allows us to attract the best people and to set them free to make things happen. This culture is at the root of the company's pioneering record on innovation. We employ over 4,600 people, operating out of 64 offices representing clients in over 145 countries” they declare further, and I can confirm that this is true, as I have observed them over the past 2 decades. They are the champions of banking software, have experienced an incredible virtuous cycle - solid products, competition waning, banks in desperate need of control & security, banks lacking internal resources outsourcing their IT, big names signed over the past 2 years, etc. 

I must stop here and pay tribute to George Koukis and his legacy. I bow deeply in front of the past & present management team that have delivered the stellar stock performance of Temenos.

As you know, intuitively I have resisted investing in the banking sector.  Banks tend to spend a large percentage in internal IT instead of outsourcing to companies such as Temenos.  In short, investing in Temenos, has showed me one of the reasons why I didn’t want to invest in the banking sector.

With a 2017 stock performance of 75%, 36.5% in 2016 and 46.3% in 2015, it is an understatement to say that we have reached the intrinsic value.

But, what I don’t really understand is why Temenos wasn’t taken over 5 years ago. Then, its EV (entreprise value) was CHF 1 bn vs. CHF 9 bn now! Reading my visit notes from 2008 to 2012, all the elements, visible to me and evident to the sector heavyweights such as SAP and Oracle, were there: consolidation in the banking sector, replacement of legacy systems, re-regulation, 20% of sales invested in R&D.  Just think for 20 years they have been investing 20% of their sales in R&D!

Truly A Cut above the Rest.