Wednesday, April 2, 2014

Accenture to Take Over Fixing Website- 04/04/2014
Topic: Accenture


  1. Sources: Morningstar direct, Bloomberg, company 10K

    Accenture is a leading global provider of management consulting, technology services, and outsourcing. Accenture utilizes its specialized skills, global delivery net work to help its clients improve their efficiency, value and growth prospects. Its clients include 89 of the Fortune Global 100 companies.

    (reference item: 2013 rev 30.4 billion, FCF 2.93 billion)
    Revenue by work type: 51% from consulting, 43% from outsourcing, 6% reimbursements.
    5 operating segments: (share of rev and OI)
    Products: 22%/23%, Financial services 20%/23%, Communications and high tech 19%/18%, Resources 17%/22%, Health& Public Service 16%/14%, Resources 17%/22%.

    FCF conversion in 2013, 9.7% of rev. Uses of FCF:
    - Dividend, 38%
    - CapEx, 13%
    - Shares repurchase, 87%
    - Changes in non-cash WC, 17%
    - Debt repayment, NM
    (Used BI information technology companies as industry performance index, eliminated outliers)
    In FY2013, Accenture's Operating margin ROE was 13%, on par with industry average. Sales growth was 2%, below industry's 5% growth. ROE was 72%, higher than industry average 26%.
    It is now trading at P/E of 19, slightly higher than industry average of 17.3.

    Economic moat
    I believe Accenture has a wide economic moat based upon its expertise on fragmented IT services industry, customer loyalty and high switching costs.
    - Accenture’s success can be attributed to its ability to attract and foster close and long-lasting business relationships. It is underscored by the fact that 99 of the company’s top 100 clients (by revenue) have been with the firm for at least five years, and 92 have been with the firm for at least 10 years. These figures highlight the intimate and often mission-critical nature of Accenture's work, which leads to clients’ unwillingness to switch between service providers.
    - In addition, Accenture’s high rate of sole-sourced bookings (60% for fiscal 2013--about twice the rate of competitors) , this underlines its distinguished culture and service quality.

    - Cloud computing and cyber security have become a bullish theme for IT consulting firms. This tailwind will drive Accenture's revenue in the short to mid-term.

    - About half of its revenue came offshore, Accenture is exposed to considerable foreign exchange rate risk.
    - The IT services industry remains highly competitive, so Accenture must continually offer its clients the best value while retaining its most important people.

    Uncertainty: low, Economic moat: wide

  2. Accenture Plc (ACN)

    Data source: 10K, MorningStar, SeekingAlpha

    Revenue breakdown by operating groups

    • Communications, Media & Technology 20%18%
    • Financial Services 21% 23%
    • Health & Public Service 17% 14%
    • Product 24% 23%
    • Resources 18% 22%
    • Other 0.1%

    By geographic regions
    • Americas 47%
    • EMEA 39%
    • Asia Pacific 14%

    By type of work
    • Consulting 54%
    • Outsourcing 46%

    • Commercial clients. Targeted at companies operating in almost all the industries

    Free cash flow
    • 2011 11% 88%
    • 2012 13% 91%
    • 2013 10% 89%
    • Acquisition 3%
    • Common stock repurchased 8%
    • Dividend paid 4%

    What is going right
    • 3 year average revenue growth 9.59%
    • 3-year average net income growth 22.61%
    • Debt/Equity 0.01, Nearly don’t have long-term debt from 2007 to 2012, 2013 the debt is 26 million
    • From a comparable standpoint, ACN's dividend has grown a solid 148% over the past three-and-a-half years, whereas the dividend growth of its sector-based peer IBM (IBM) had only increased 46.15% over the same period.

    Economic Moats
    • Deep and broad industry expertise, a global delivery network, and satisfied customer references
    • Ability to attract and foster close and long-lasting business relationships.

    What could go wrong
    • With over half of group revenues generated offshore, Accenture is exposed to meaningful foreign exchange rate risk.
    • Development of relevant intellectual property and the provision of specialized teams with deep industry experience.
    • ACN will need to pay more to obtain or retain the talents.