Friday, November 30, 2018

A Current AIM Program International Equity Holding: Accenture Plc (ACN) by: Alex Penkwitz. "Service This!"

Accenture Plc (ACN, $160.29): “Service This!”
By: Alex Penkwitz, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Accenture Plc (NYSE: ACN) is one of the world’s leading professional services companies engaging in the provision of management consulting, technology, and outsourcing activities. ACN serves clients in a variety of industries in three geographical regions: North America (45% of 2018 revenue), Europe (36%), and Growth Markets (19%) such as Asia Pacific, Latin America, Africa and the Middle East. Accenture Plc was founded in 1989 and is headquartered in Dublin, Ireland.

• ACN reported very strong FY2018 numbers. Net revenues grew by 10.5% in local currency and roughly 80% of overall growth was from strong organic growth of 8%.

• ACN just announced a semi-annual cash dividend of $1.46 per share, a 10% increase from their previous dividend.

• ACN had their second highest bookings on record, reported as $10.8 billion for Q4-18.

• ACN has shifted their core business to the “New” digital, cloud, and security related services. The “New” accounted for 60% of their total revenue in FY2018.

Key points:

Accenture’s strong results for FY2018 demonstrates that they continue to execute their profitable growth strategy of differentiation and competitiveness very well. Their strong revenue growth displays that there is an increasing demand for their services.

ACN recently announced that they will be increasing their semi-annual dividend $1.46. This represents a 10% increase from the previous semi-annual dividend that was declared in March. This newly declared dividend will be paid on November 15, 2018. Taking effect in Q1-20, ACN will move from a semi-annual dividend payment schedule to a quarterly dividend payment schedule.

Accenture posted their second highest bookings on record in Q4-18, only behind their numbers in Q3-18. In addition, Consulting bookings were $6.1 billion, which also represented an all-time high.
ACN has begun to shift the core of their business to “New” offerings such as digital, cloud, and security related services. With the technological tilt that the world is seeing now, it has proven to be a good strategy for Accenture. The New services have delivered double-digit growth and is a key catalyst in order for ACN to differentiate themselves from competitors. In FY2018, the company saw 60% of their total revenue come from New services.

What has the stock done lately?

Technology stocks got hit hard in the recent past and ACN’s price has seen these fluctuations. From early August to early October, Accenture saw a 10% increase, starting at $159.09 on August 1st and ending at $174.82 on October 3rd. This is followed by an immediate decline of 13.8% until October 29th where the stock began to recover again. I think that as the technology industry stabilizes, the stock will continue to rise as ACN begins to take more market share from their shift towards their new business core.

Past Year Performance:

ACN has increased 12.58% in value over the past year. As I mentioned in the above section, the stock saw extreme declines during the month of October in 2018. The overall increase in value is due to the confidence investors have in the growth that ACN will continue to have in their New services. Look for Accenture’s stock to stabilize soon and get back to its constant growth that was displayed in early August and November.

Source: FactSet

My Takeaway:

When this stock was first pitched, it was currently at $156.84 and the target P/E multiple was set at 24.0x which resulted in a price target of $201.03. That price target seems achievable in the long run with the continuation of the growth that Accenture Plc has shown in the past. I expect to see ACN bounce back from their October downturn to get back on track to achieve this price target.

Accenture Plc. (2018). Q4 2018 10-K. Retrieved from Factset online database.
Accenture Plc. (2018). Q4 Earnings Call Transcript. Retrieved from FactSet online database.