We take the opportunity of the recent Accenture release to update our model on Sopra Steria and consolidate the CS Group and Tobania acquisitions. We think Sopra Steria''s profile should remain fairly resilient in a downturn, although potential risk of a disappointment in Banking Software and Other Europe (Sparda JV) keeps us from taking a more constructive stance. Neutral.
Resilient profile into 2023...
Accenture released its FQ1 2023 on Friday last week, mentioning that Strategy and Consulting revenue, which was up low single digit in the quarter (ended November 2023), would likely be down YOY in FQ2 (ending February 2023) before rebounding again in FH2 23. We think Sopra Steria will remain more resilient in 2023: 1/ Consulting is 10% of top line and focussed on digital transformation rather than strategy; 2/ Defence exposure (c. 20% of group revenue, notably Airbus) should remain a tailwind; 3/ revenue from the debt collection platform should be a 1-2% tailwind to revenue growth in the UK; 4/ juniorisation remains a lever to improve margins.
... but concerns remain
SOP expects to sign c. EUR20m of highly profitable licenses in Sopra Banking Software in Q4, which might prove difficult in a deteriorating banking software environment. Secondly, issues remain around the digital transformation of the Sparda banks, and while soft EBIT contribution from the JV has so far been more than offset by beats in pure IT services, this might not be the case next year.
Neutral maintained, TP down to EUR165
We have added CS Group and Tobania to our model, and now expect +2.0% LFL growth at the group level in 2023E, and +8.4% on a reported basis. We raise our EPS 2023E and 2024E by 8% and 4% respectively as a result of the consolidation of these acquisitions, as well as lower expected PandL tax rate (29% vs. 33% previously in our model). We continue to value the shares with a DCF, in which we raise the WACC to 9.6% from 9.2% previously to account for the recent...
