By
Alex Malitas, 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
• Capgemini (CGEMY) provides consulting and technological strategy
services to global clients in order to aid them in their individual competitive
industries.
• Three operating
segments: Applications and Technology (70% of Revenue), Operations &
Engineering (23% of revenue), and Strategy & Transformation (7% of revenue).
• The company revised revenue
growth projections for fiscal year 2019 to the lower end of the previously
stated range to an estimated 5.5% growth.
• The company has commenced
a friendly tender offer to acquire Altran Technologies which could be a major
catalyst for the future.
• After beginning 2019 at
a 52-week low, the stock has rebounded and has the potential to continue rising.
Key
points:
Capgemini’s position as a
leader in global technology consulting has yet to be challenged while it focuses
on seven strategic priorities to address the future of technological innovation.
The
company is in a unique spot to capitalize on future development of Internet of
Things and 5G technologies as many firms examine how to implement these
technologies into their products and services as well as internal mechanisms. Capgemini’s
ability to provide highly efficient services through their in-house consultants
will continue to allow the firm to develop relations with clients who wish to
build out platforms for Artificial Intelligence, deep learning, and cyber
security.
In
June of 2019, Capgemini announced a public tender offer for Altran,
a global leader in engineering and R&D services. The combined company would
create what the company describes as an “intelligent industry” which connects
information technology with operational technology. The combined firm would be result
in a 17-billion-euro revenue firm with 250,000 professionals employed. Utilizing
expertise in future technology such as AI, 5G, and IoT, the combined firm would
have access to a variety of new clients with high synergies and operating model
efficiencies.
This is not the first
time Capgemini has used M&A. In fiscal year 2018, the company invested
heavily or acquired in five companies to expand their client base. The synergies
that were experienced with these previous acquisitions show managements ability
to effectively execute on M&A transactions which is likely to be seen in the
case of the Altran acquisition. If the merger closes, shareholders are likely to
see revenue growth and higher value of Capgemini’s stock.
What
has the stock done lately?
Since
reaching a high of $27.67 in mid 2018, Capgemini’s stock performance has been
trading in a range of $18.86 and $25.81. The company had a major drop in stock
price at the beginning of 2019 reaching the low of $18.86. Recently, the stock
has consolidated in the $22 - $24 range however the positive catalyst of the Altran
acquisition could provide additional value to shareholders. The company’s
current stock price is $23.19.
Past
Year Performance:
Over the past year the
stock has returned a -4.38% coming in at $23.19 which is a discount to when the
stock was originally added into the AIM portfolio at a price of $24.18 in November
of 2018. However, the year to date change, shows drastic improvement in stock
price increasing by 16.85%.
1
Year Stock Chart vs. Benchmark from FactSet
Source:
FactSet
My
Takeaway
Capgemini’s position as a
leader in IT consulting in an environment where technology is outpacing many
large firms gives them an advantage for continued revenue streams. The proposed
combined company of Capgemini and Altran represents a positive outcome for Capgemini
shareholders as the addressable market of their consulting services expands
with expertise in new industries. With access to many blue-chip clients, the company
and its shareholders should benefit strongly if the acquisition proceeds.
1
Month Stock Chart from FactSet
Source:
FactSet
