Wednesday, January 2, 2019

An AIM International Equity Fund Holding: WNS Holdings ADR (WNS, $45.16): “Solutions That Just Keep WNinning” By: William McMahon, AIM student at Marquette University



WNS Holdings ADR (WNS, $45.16): “Solutions That Just Keep WNinning”
By: William McMahon, AIM student at Marquette University

Image result for wns holding


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
WNS (Holdings) Limited Sponsored ADR (NYSE:WNS) provides business process outsourcing services with significant capabilities in process management, analytics, business transformation, and data management through a blended, global delivery model consisting of onshore, offshore, and near-shore capabilities offered throughout the world including India, China, the United States, the United Kingdom, and South Africa.

• Win rates on renewals remain high and an increase in sales headcount is driving more new work.
• Positive outlook as high- growth internet companies continue partnering with BPO providers to help budding companies’ focus on top- line growth and increasing their customer bases combined with a lack of experience in handling middle- and back- office operations.

• The transition towards performance- based contracting should work to improve margins and increase use of automation through software.

Key points: WNS and the BPO industry have proven to be resilient in downturns of the macroeconomic environment due to the general view that they are a necessary expense in cutting other unnecessary expenses and increasing efficiency. By carrying out this function, WNS makes themselves a mainstay among the client company, often decreasing client costs and providing efficiency improvements of roughly 3% per year to companies that are scrutinizing internal expenses.

As a result, should the economy slow, WNS should in turn see an increase in business as companies look for lower- cost solutions for managing their processes. In addition, WNS is often viewed as a defensive investment (which has thrived in the current melt up) with the added benefit of contributing to high- growth internet companies in ways that are essential to those companies’ growth objectives. This trend that has helped sustain healthy top- line growth in a growing economy that should continue even if the market turns.

Aside from the company’s already favorable positioning within their client base and the industry as a whole, management has made a few recent acquisitions (HealthHelp, Denali, and Value Edge) which should be beneficial from both a financial and strategic perspective. WNS will utilize Value Edge and Denali to enhance the company’s analytic solutions within the pharmaceutical industry and procurement space and add opportunities to leverage those capabilities across other clients and industries. Another key to this acquisition was the higher revenue per employee than WNS which both HealthHelp and Denali share. Despite WNS’s already industry- leading margins, the awareness of this move should reassure investors that the company is targeting quality companies for acquisition.

To continue analyzing margins, WNS continues to produce industry- high metrics and has guided to the long- term goal of achieving 18%-20% with an increase in operational efficiency from previous acquisitions and the steady move from FTE contracts to transactional/performance based contracts. This transition would be essential for attaining this goal as performance- based contracts can often yield 2%-3% higher margins than the previously used, FTE equivalents.

What has the stock done lately?
Since the beginning of 2018, WNS’s price has increased by nearly 20%. While this is certainly an impressive start, there is no reason to suspect the company of slowing down anytime soon either. The company has and will continue to be one of the best stocks within the AIM Class of 2019’s portfolio.

Past Year Performance: WNS has increased 10.39% in value over the past year.  WNS remained in line with EPS estimates during the second quarter of 2019, generating an EPS of $0.54. WNS had a strong second quarter in terms of revenues, reporting revenues of $199.1 million.


Source: Google Finance
My Takeaway
WNS has proven to be an industry leader that keeps setting the bar for itself higher and higher with every quarter. I believe that the company’s business plan and focused niche of assisting high- growth internet startups streamline efficiency in a day and age where so many startup pop up and thrive, should continue to prove effective. Management’s identification of this same need within healthcare is certainly the company’s next step in reaching new heights. I have faith that WNS will achieve their long time margin projections and assert themselves as a paradigm of the industry for years to come.



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