WNS
Holdings ADR (WNS, $45.16): “Solutions That Just Keep WNinning”
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.
