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Research Tree provides access to ongoing research coverage, media content and regulatory news on CAP GEMINI. We currently have 7 research reports from 1 professional analysts.
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Substantial free cash flow
17 Feb 17
Despite a soft Q4 16 with organic revenue up 1.9% at constant currency, Capgemini achieved its guidance for revenue growth (+7.9% at constant currency vs +7.5-9.5% targeted) and the operating margin (11.5% of revenue vs 11.3-11.5% targeted). Igate contributed for 12 months (vs 6 months in 2015). Q4 16 figures: Revenue reached €3,263m (-0.2%, +1.9% at constant currency) and new orders were €3,879m (+3.9%, +5.4% at constant currency) representing a book-to-bill ratio of 1.19 (vs 1.14 in Q4 15). The change in overall revenue included a negative currency effect (-2.1%) mainly attributable to the pound vs the euro and a moderate change in the perimeter (+0.3%). Organic growth slowed (+1.6% vs +2.9% in 9m16) and was above the trend in Q4 15 (+0.1%). At constant currency and current perimeter, revenue growth (+1.9%) came mainly from Applications services (+4.9%) and Technology and Engineering services (+1.2%) to a lesser extent. Conversely, revenue decreased in Consulting services (-1.7%) and dropped in the Other Managed services (-5.3%). By geographic area, Europe was a growing region and France was the best performer (+5.9%), largely ahead of the UK/Ireland (+1%) and the rest of Europe (+2.4%) which included a slowdown in Benelux. North America was disappointing (-3.1%) due to the on-going weakness of the energy/utilities sector and slight growth (+1.1%) excluding this sector. Conversely, the Asia Pacific/Latin America area was fast-growing (+11.7%) driven by the strong development in financial services in Asia Pacific. FY2016 figures: Based on revenue of €12,539m (+5.2%, +7.9% at constant currency, +2.6% organically), the operating margin surged to €1,440m (+14%) and the margin rate improved to 11.5% of revenue (vs 10.6% of revenue in 2015) which was at the top of guidance (11.3-11.5%). New orders reached €13,027m (+13%, +14.5% at constant currency) representing a book-to-bill ratio of 1.04x. The order intake benefited from booking synergies related to the integration of Igate (>€300m). The currency impact was negative on revenue: -2.7pts, o/w 80% of this related to the depreciation of the pound vs the euro. The following growth rates are at constant currency: - The digital and cloud revenue continued to increase significantly (+29%) and represented 30% of group revenue. - By division, the Application Services and Technology/Engineering services were up 10.6% and 6.9% respectively (including the impact of Igate) while the Consulting services and Other Managed Services increased by 2.7% and 2.2% respectively. In Other Managed Services, there was a organic decline attributable to the UK public sector as expected (re-insourcing at HMRC), the weakness of the traditional infrastructure services due to the transition to the cloud and, finally, lower equipment resales (not in Q4 16). - Revenue increased in all geographic areas (North America: +14.5% including Igate on 12 months, France: +5%, UK/Ireland: +4.1%, Rest of Europe: +5.3%, Asia-Pacific/Latin America: +8.2%). The improvement in the operating margin (+0.9pts to 11.5% of revenue) was attributable to all divisions and all had double-digit margin rates (Consulting Services: +1.6pts to 10.7% of revenue, Sogeti: +1.2pts to 12.8% of revenue, Application Services: +0.8pt to 12.7% of revenue, Other Managed Services: +0.4pt to 10% of revenue). The picture was positive in all geographic areas (North America: +0.5pt to 15.4% of revenue including Igate for 12 months, UK/Ireland: +1.2pts to 14.6% of revenue, rest of Europe: +0.3pt to 10.5% of revenue, France: +1pt to 9.1% of revenue, Asia Pacific/Latin America: +2.4pts to 6.6% of revenue). Operating profit reached €1,148m (+12%) after higher restructuring costs (€-103m vs €-81m in 2015), amortisation of intangibles related to acquisitions (€-68m vs €-45m in 2015), acquisition/integration costs (€-69m vs €-55m in 2015). Group net profit reached €921m (-18%). The apparent decrease was due to the one-off non-cash gain of €476m related to the reassessment of deferred tax assets on US tax loss carry-forwards accounted in 2015. Excluding this item, group net profit grew by 14%. Net debt was reduced to €1,413m (-20%) at year-end 2016 thanks to substantial operating cash flow and FCF. The operating cash flow increased to €1,319m (+31%) and FCF was substantial at €1,143m (vs €825m in 2015) after stable net capex (€176m). Cash-out flows included principally the dividend paid (€229m) and share buy-backs (€340m). The proposed dividend was €1.55/share, +15% (3% above our expectation).
Growth slowdown, not for new orders
27 Oct 16
Organic revenue growth slowed in Q3 16 (+2.1%) compared to Q2 16 (+3.8%) and Q1 16 (+2.9%) but the commercial activity was dynamic in the light of the strong increase in new orders (+14% at constant currency). Q3 2016: Revenue reached €3,019m (-0.6%, +2.2% at constant currency) and new orders were €2,792m (+11.7%, +14% at constant currency). Overall revenue growth included a significant negative currency effect (-2.8pts) and a moderate change in perimeter (+0.1pt). Organic revenue growth was 2.1% (vs 1.5% in Q3 15). The digital and cloud solutions were the growth drivers (+25%) and represented 29% of total revenue. At constant currency and including the small acquisitions, revenue growth (+2.2%) came mainly from Applications services (+4.4%) and Consulting services (+3.1%) which was driven by the strong demand for digital and cloud transformation. Conversely, revenue increased slowly at Sogeti (Technology and Engineering services, +1.3%) and dropped in the Other Managed services (-3.3%) reflecting the impact of the re-insourcing at HMRC. On 30 September 2016, Capgemini had 187,616 employees (+5.4% yoy), o/w c.103,900 (+8.8%, 55.4% of the total workforce) were located in the global production centres offshore.
Guidance revised upwards
27 Jul 16
Capgemini had a good H1 16 including growth acceleration in Q2 16, in line with expectations. H1 16 earnings. - New orders were strong (€6,341m), above revenue (book-to-bill ratio: 101%). - Revenue was €6,257m (+11.6%, +14.4% at constant currency). Organic growth was 3.3%, o/w +3.8% in Q2 16. Total growth was driven by the digital/cloud offerings (28% of revenue, +32% at constant currency, including the impact of Igate). - At constant currency, including Igate, Application services (60% of total revenue, +17.2%, o/w +18.3% in Q2 16) continued to benefit from demand for the digital and cloud offerings. The digital transformation also had a positive impact in Consulting services (4% of total revenue, +8.1%, o/w +8.8% in Q2 16, close to organic growth). The Technology & Engineering services revenue (15% of the total revenue) grew by 13.1%, o/w 15% in Q2 16, and Other Managed services (21% of total revenue) had a lower growth rate (+9.3%, o/w +7.5% in Q2 16). By geography (at constant currency, including Igate), revenue growth was dispatched as follows: +36.2% in North America (Igate effect), +8.6% in the UK/Ireland, +4.8% in France, +6.9% in the Rest of Europe, +10.3% in Asia/Pacific and Latin America. - The operating margin surged to €638m (+31%) corresponding to a margin rate of 10.2% of revenue (vs 8.7% of revenue in H1 15), benefiting from the integration of Igate (consolidated in H2 15) and cost synergies but not only (growth in the digital and cloud, further industrialisation). - Operating profit increased to €510m (+14%) after higher acquisition and integration costs (€-38m vs €-9m in H1 15) and amortisation of intangible assets acquired related to Igate (€-35m vs €-9m in H1 15). Conversely, restructuring costs were rather similar yoy (€-31m vs €-35m in H1 15). - Group net income increased to €366m (+26%) after net financial costs (€-62m vs €-41m in H1 15) and lower income tax expense (-31%) due to the recognition of a deferred tax asset of €32m. The operating cash flow was positive at €113m (vs €-40m in H1 15), including higher tax paid (€-94m vs €-39m in H1 15). Free cash flow was €39m (vs €-98m in H1 15). Sigificant out-flows included share buy-backs (€-158m) and the payment of the dividend to shareholders (€-229m). On 30 June 2016, net debt was €2,278m (vs €1,767m at year-end 2015).
Organic growth acceleration driven by digital/cloud
27 Apr 16
Q1 16 revenue Revenue reached €3,092m (+11.8%, +13.9% on constant currency). The change in scope relating to the contribution of Igate was significant (+11%). The Group continued to benefit from its fast-growing Digital and cloud offerings (+28% including a small contribution from Igate). Organic revenue growth was good and accelerated (+2.9% vs +1.5% in Q1 15). The order intake reached €3,128m (+17.6% on constant currency), broadly equivalent to revenue. On constant currency and including Igate, Application services (59% of total revenue, +16.2%) continued to benefit from demand for the digital and cloud offerings. The digital transformation also had a positive impact in Consulting services (4% of total revenue, +7.4% corresponding to organic growth). The Local Professional services and Other Managed services (respectively 15% and 22% of total revenue) enjoyed a similar growth rate (+11.2%) considering Igate’s respective activities. The total workforce increased by 24% yoy and the headcount “offshore” surged by 44% yoy reflecting principally the integration of Igate (c.30,000 employees o/w c.80% “offshore”). On 31 March 2016, there were 182,908 employees, o/w 55% “offshore” (100,000 employees), mainly in India (vs 48% of the headcount on 31 March 2015). The unchanged attrition rate at the Group level (16.7%) included a lower attrition rate in Consulting services (-2.8pts to 16.5%) and a higher attrition rate in Application services (+0.3pt to 16%).
Higher operating margin than expected
19 Feb 16
In 2015, Capgemini integrated Igate (1 July 15) which helped the significant increase in the operating margin rate (1.4pts to 10.6% of revenue). Nevertheless, Capgemini on a standalone basis contributed largely to the margin improvement (+0.8pts to 10% of revenue). 2015 figures: Based on revenue of €11,915m (+12.7%, +1% organically), the operating margin surged to €1,262m (+30%) and the margin rate improved to 10.6% of revenue (vs 9.2% of revenue in 2014), above the 10.3% guidance. New orders reached €11.5bn (+5%), o/w €3.7bn in Q4 15 representing a B2B ratio of 1.14. - Organic revenue increased in all geographic areas (North America: +7.8%, France: +1.2%, Rest of Europe: +7.4%, Asia-Pacific/Lagin America: +6.5%) except for Benelux (+0.1%) and the UK/Ireland (-13.9%), which was penalised by a change in the structure of the Aspire contract. The Application Services and Consulting services were fast-growing (respectively +6.3% and +5.8%) while the Local Professional Services were rather flat (+0.3%) and the Other Managed Services plunged (-10.9%) attributable to the UK. - The improvement in the operating margin at the group level (+1.4pts to 10.6% of revenue) was attributable to the North American operations (+2.3pts to 14.9% of revenue including Igate), the UK/Ireland (+2.1pts to 13.4% of revenue) and the rest of Europe (+1pt to 9.6% of revenue). The operating margin rate decreased in France (-0.3pt to 8.1% of revenue) and Asia-Pacific/Latin America (-1.9pts to 4.2% of revenue). The operating profit was up to €1,022m (+20%) after higher restructuring costs (€-81m vs €-68m in 2014), acquisition-related amortisation of intangibles (€-45m vs €-20m in 2014), acquisition and integration costs (€-55m vs €-5m in 2014) and a goodwill impairment related to the Latin American operations. Group net profit reached €1,124m (+94%) after higher net financial expenses (€-118m, +69%) and a one-off non-cash gain of €476m related to the reassessment of deferred tax assets on US tax loss carry-forwards. Capgemini ended the year with net debt of €1,767m, including the debt brought by Igate (vs net cash of debt of €1,218m in 2014). The operating cash flow increased to €1,004m (+23%) and FCF was €825m (vs €673m in 2014). Cash-out flows included principally significant net investment in shares of €3,392m. Capgemini paid $3,961m for the acquisition of Igate. Share buy-backs of €150m are planned in 2016 (subject to approval at the shareholders' meeting) over a multi-year programme of €600m. The objective is to attenuate the dilution related to the employee share programme and incentive instruments.
A more positive picture than appearances
29 Oct 15
Capgemini had a slight increase in organic revenue in Q3 15, in line with the trend seen in H1 15. The interesting achievement was the strong development in Application services (60% of total revenue). In Q3 15, revenue reached €3,036m (+17.2% and +1.5% organically). There were a positive translation currency effect (+5%) and a change in perimeter with the consolidation of Igate on 1 July 2015. Organic revenue growth was only 1.5% (vs +2.8% in Q3 14) due to the drop in revenue of Other Managed services (-13.7% vs +0.6% in Q3 14) which was affected by the change in the structure of the Aspire contract in the UK and the difficult economic environment in Brazil. Local Professional services were weak (+1.4% vs 0% in Q3 14). Conversely, Application services (60% of total revenue) were buoyant (+8.2% vs +5.1% in Q3 14) and Consulting services (4% of total revenue) performed well (+6.7% vs -3% in Q3 14). New orders reached €2,499m (+20% at constant currency and including Igate). The structure of the order intake tends to change with a higher portion of small-sized projects instead of multi-year managed services contracts. On 30 September 2015, there were 178,045 employees. The strong increase in workforce (+24% ytd) was mainly due to the integration of Igate (c.30,000 employees) which has significant 'offshore' staff in India. Capgemini's workforce in global production centres represented 54% of the total (>96,000, o/w 85,000 people in India). According to management, the integration of Igate is on track. In the short term, the priorities of the new group (Capgemini+Igate) are the implementation of a full vertical model in Financial services, capitalisation on the best practices in North America application services and the creation of a new business unit called Business services that will comprise BPO and the Igate ITOPS (a service that integrates technology and process requirements).
N+1 Singer - NCC Group - Further issues in Assurance
22 Feb 17
NCC released a trading update yesterday afternoon highlighting further issues in its Assurance division. Sales growth has been lower than expected in all regions, resulting in a significant reduction in full year expectations. We have reduced our EPS forecasts by 25% in FY’17 and 22%/25% in FY’18/’19 respectively. Escrow continues to perform in line with expectations. In response to these issues the Board has announced a strategic review into all of the Assurance businesses. The results of the strategic review are expected to be announced at the FY results in July. With an extended period of uncertainty on the horizon we believe it will be hard for investors to gain confidence in NCC in the short term. That said we see fundamental value in the stock. Escrow is unaffected by this warning and remains an extremely high quality business, which we value at £353m in our SOTP. At the current share price this leaves Assurance valued at c.5x cal’17 EBITDA. While this appears to be an attractive multiple for a rare cybersecurity asset, we would like further clarity on the underlying nature of the current issues, hence our Hold recommendation. Our 138p target price assumes a 12x EBITDA multiple for Assurance but we apply a 20% discount to the group to account for the current uncertainty.
20 Feb 17
Hayward Tyler Group* (HAYT): Trading update and financial position (CORP) | Petra Diamonds (PDL): Interim results (BUY) | Gemfields* (GEM): Interim results (CORP) | Premaitha Health* (NIPT): Middle East momentum (CORP) | Sound Energy (SOU): Acquisition update and TE-8 well spud (HOLD) | Proactis* (PHD): Interim trading on track (CORP) | 7digital* (7DIG): Automotive contract win (CORP)
21 Feb 17
Lighthouse Group* (LGT): Middle Britain growth (CORP) | Utilitywise* (UTW): Double-digit sales growth (CORP) | Trakm8* (TRAK): Earnings expectations cut again (CORP) | dotDigital* (DOTC): Myriad growth opportunities (CORP) | Artilium* (ARTA): Five-year Telenet deal secured and prepaid (CORP) | Netcall* (NET): Cloud investment pays off (CORP)
N+1 Singer - Small-cap quantitative research - New quality style screen + 11 quality focus stocks
09 Feb 17
We introduce our fourth and final style screen representing “quality”. This screens for stocks with the best combination of high returns on capital/equity, EBIT margins and operating cash-flow conversion rates. These criteria should help us monitor how strong underlying returns translate into share price performance over time and under varying market conditions. The screen selects the “best” 25 stocks from our universe of just over 500 stocks and, as usual, we focus on a shorter list of stocks we cover or otherwise know and believe to be particularly interesting. We provide brief investment summaries on these focus stocks on pages 4 – 9. We will monitor performance and refresh the screen in approximately 3-4 months time.
The Slide Rule
12 Jan 17
What is The Slide Rule? The Slide Rule has been designed to dramatically simplify the identification of the best companies in the UK small/mid-cap sector by making a quantitative assessment of the relative potential of each company. At its core, The Slide Rule aims to identify those companies that create genuine shareholder value through strong returns on capital and solid growth, but also present a value opportunity with the potential tailwind of earnings momentum. Companies are assessed within a Quality, Value, Growth and Momentum (QVGM) framework.
N+1 Singer - PROACTIS Holdings - H1 in line
20 Feb 17
A positive interim trading update confirms that H1 results are in line with expectations, with revenues up 36% to c£11.8m on the back of strong organic growth (13%) and an in-line contribution from acquisitions. We make no changes to our forecasts, recommendation and target price pending the release of interim results on 26 April.