Thursday, December 13, 2018

A Current AIM Program International Equity Holding: Accenture Plc (ACN) by: Edward Eisenhauer. "All Firms Need This Sidekick"

Accenture Plc (ACN, $161.07): “All Firms Need This Sidekick”
By: Edward Eisenhauer 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 an investment holding company that engages in management and technology consulting and outsourcing services. ACN is made up of four segments: Communication and Media, Financial Services, Health and Public Service, Products, and Resources. They serve a variety of businesses across all sectors and government entities. Their services aim to streamline businesses processes, such a customer management systems, supply chain management systems, and other business processes by improving communication and data efficiencies. There services are focused on technology and cloud integration among all segments of the client firm.

        ACN is the global leader among its competitors in the technology and business process consulting space.

        ACN is on pace to continue its leadership with above average net sales growth of 5-8% estimated for 2019 based off 20 % global growth of emerging technologies.

        Accenture’s dominate business model and future growth projections rely heavily upon the ability to retain and attract talent, given emerging technologies are 60% of revenues.

        Analysts are optimistic for the future of Accenture and its competitors. A Capgemini survey reported that 77% of firms struggle with in-house tech talent and are relying on outsourcing  for service.

Key Points:

            Since Accenture has been added to the AIM portfolio, it has outperformed its analysts’ predictions for 3 quarters, beating both top line and bottom line estimates. ACN’s Q3 reported double digit revenue growth in all geographic segments except Europe, which still recorded growth of 9%, and in the Communication and Media, Product, and Resources business segments. Accenture is still in a powerful position for future growth as it continues to lead its space while also having growing global demand for its business. 77% of firms globally are relying on technology and management consulting services and their dependence on these services will continue to grow. Increasing speeds of technology evolution and increasing complexity gives Accenture’s service a sweet spot for all sectors.

            Since February 2018, Accenture has acquired more than 10 firms scattered across the world and within different business segments. To start, Accenture has acquired HO Communication in greater China to expand its digital design and commerce services to their clients in China. They have also acquired Mindtribe, Pillar Technology, and Designaffairs in Europe as bolt-on acquisitions to help design smart products (Designaffairs), and to help build and implement smart products into the business structure of their customers (Mindtribe and Pillar Technology). Most recently, on November 12, ACN acquired the swedish firm Kaplan. Kaplan will improve Accenture’s data-driven customer relationship management services and will allow Accenture to strengthen its end-to-end experience service for Northern European nations.

What has the stock done lately?

            Accenture is staying focused on generating and maintaining a substantial cash balance to continue their high rate of acquisitions. The recent 10k was released last month on October 24th and details much of what was discussed above. Its last 3 quarters sales growth was 14.9%, 15.8%, and 10.4% respectively and is expected to continue around 7-9% for 2019, keeping margins consistent at 14%. With the brexit deadline on the horizon, Accenture could be hurt by some legislation but also could see a boost in sales as companies look to restructure. According to a study conducted by Accenture, 90% of banks plan on implementing an Open Banking service for their commercial clients, which should boost sales growth into the double digits. Accenture is expected to profit from this industry move to Open Banking.

Past year Performance:

            Accenture YTD return is 5.21% and its 52 week change is 9.61%. Accenture has an average beta of 1.05 and its last 3 month return is -5.12%, which reflects the beta and recent market performance. Despite the recent dip in price, ACN has outperformed its benchmark and is still leading its competitors.

Source: FactSet
My Takeaway:

            As of late, Accenture’s stock price seems to be following the markets and is a relatively cheap buy right now, as markets are slumped. Based off the factors discussed above, Accenture is growing rapidly with 10 plus acquisitions made within the last year and double digit top line growth, paired with double digit industry growth. Accenture has an incredible bright future as technology continues to evolve and make its way into every sector across the globe. With increasing competition in all sectors globally, evolving industry 4.0, and the need for integration and efficiency to stay profitable, the demand for Accenture’s services is expected to explode. The brexit shakeup should give Accenture an opportunity for additional clients. Lastly, cloud services account for 60% of ACN revenues and global cloud growth is expected to grow by a CAGR of 21.1% for the next 5 years. To conclude, Accenture has immense long term growth potential as the global economy continues to digitalize.

Source: FactSet