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.
Summary:
●
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
