Today we have a moderately speculative idea.: take stock of Genpact (NYSE: G), providing professional services, to capitalize on the inevitable digitalization of the corporate sector.
Growth potential and validity: 14% during 12 Months; 11% per year for 15 years. All excluding dividends.
Why stocks can go up: there is a lot of money in IT.
How do we act: we take shares on 50,55 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
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And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark: as with the investment idea as a whole, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
The company provides services to the corporate sector mainly in the IT plane. She outsources a part of the IT functions of the enterprise and advises her clients on technological issues.. According to the company's annual report, its revenue by types of customers is divided as follows.
Company revenue by types of customers
| Revenue as a percentage of total | Adjusted operating margin of the segment | |
|---|---|---|
| Banking, capital markets and insurance | 27 | 12,31% |
| Consumer goods, retail, R&D and healthcare | 34,09 | 15,59% |
| High tech, manufacturing and service sector | 38,91 | 17,58% |
Unfortunately, The report does not contain information about, how much does Genpact consulting, and how much - business operations outsourcing.
Among Genpact's largest clients: AstraZeneca, Bayer, Heineken, Hitachi, Novartis, Santander, Synchrony Financial и Sysco.
Revenue by country and region:
- India — 49,9%. These are mainly non-Indian services.: invoices are sent to Indian affiliates and counterparties of end users of Genpact services, since there is almost 68% employees.
- Other Asian countries - 12,45%.
- North American countries - 27,16.
- Countries of Europe - 10,49%.
Arguments in favor of the company
Good forecast for today and tomorrow. Companies are favored as short-term, and long-term trends.
The short-term trend includes the growth of the service sector in the United States, in Asia and most of Europe. Obviously, that this will generate demand for Genpact services both in terms of business function outsourcing, and just new orders, associated with the reception of T-technologies. This is indicated by the fact, that there is a huge demand for programmers in the USA.
And in the long term, Genpact is favored by the trend towards the modernization of the corporate sector.: more and more companies will conduct a thorough digitalization of their business, what will stimulate demand for the services of companies like Genpact.
Inexpensive. Such indicators, like P / S and P / E, Genpact is noticeably lower, than its larger competitors from Infosys and Accenture. This makes its shares attractive enough for investors and allows us to hope for their growth..
Can buy. Large competitors may well buy the company. Genpact does not have a very large capitalization compared to them - about $ 9.49 billion. May be, she will even be bought by someone very similar to her, but larger Cognizant.
What can get in the way
Major client. According to the annual report, the largest five Genpact customers give 29% proceeds. Of these, only one is named in the report - General Electric - this is 12% Genpact revenue. A change in relationship with one of the major customers may adversely affect the company's reporting.
Accounting. The company has a very large amount of debt - 3.059 billion dollars, of which 1.24 billion must be repaid within a year. In this case, the company pays 43 cent dividend per share per year, it is approximately 0,85% per annum. It takes her 82.56 million a year - about 35,89% from her profits for the past 12 Months.
Basically, Genpact has enough money to cover urgent debts, and for dividends: 752,58 million on accounts and 916.366 million debts of counterparties. But still there is a possibility, that in the event of some force majeure, payments will be cut. It remains only to hope, that Genpact shareholders will not sell shares due to the loss 0,85% per annum.
But in the long term, a large amount of debt may scare away potential investors due to the expected rise in the cost of loans..
Price. The company is currently trading close to all-time highs., so stocks can be a little staggering, despite the strong foundation of this business.
Anything. New quarantines may spur demand for the company's services in the long term, forcing the corporate sector to accelerate digitalization. But on short distances, the consequences can be dire.: disruption of contracts and rising costs. The advantage of the company is that many of its employees work remotely., and Genpact shows high performance in such conditions.
Raj not happy. A significant part of the company's assets is located in India, which makes her very dependent on the situation in this country. Understandably, that the remoteness neutralizes possible negative consequences, for example, in case of strict quarantine. But still, the company may be dependent on the political situation in this developing country..
labor costs. Demand for programmers means, what, Most likely, Genpact will face rising IT labor costs this semester, and this can negatively affect its profits.. Certainly, you can console yourself with that, what a company can save on Indian coders, but the growth in the cost of labor of American IT specialists, albeit indirectly and not immediately, but will lead to an increase in the cost of Indian specialists.
What's the bottom line?
Shares can be taken now by 50,55 $. And then there are two options.:
- keep up 58 $. Think, that we will reach this level in the next 12 Months;
- keep shares next 15 years, to see, how the company will become an IT consulting giant. Or someone bigger will buy it - which is a much more likely option..
