Investidea: Genpact, because the moment is right

Инвестидея: Genpact, потому что подходящий момент

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 duration: 14% during 12 months; 11% per year for 15 years. Everything 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. Hopefully, 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 are we writing, Are forecasts and hypotheses, not a call to action. It is up to you to rely on our thoughts or not..

If you want to be the first to know, did the investment idea work, subscribe: as soon as it becomes known, we will inform.

And what about the author's predictions

Research, for example 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 perform better than people, but alas, they work worse.

Therefore, we do not try to build complex models.. The profit forecast in the article is the author's expectations. We indicate this forecast as a guideline: as with the investment in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.

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Investment editorial office

What the company makes money on

The company provides services to the corporate sector mainly in the IT plane. She outsource some of the company's IT functions and advises her clients on technology-related issues.. According to the company's annual report, its revenue by customer type is divided as follows.

Revenue of the company by type of customer

Revenue as a percentage of the 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%
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Unfortunately, there is no information in the report about, how much does Genpact consulting, and how much - outsourcing of business operations.

Among Genpact's largest clients: AstraZeneca, Bayer, Heineken, Hitachi, Novartis, Santander, Synchrony Financial и Sysco.

Revenue by country and region:

  1. India - 49,9%. These are mainly non-Indian services: invoices are sent to Indian branches and counterparties of end users of Genpact services, since there is almost 68% employees.
  2. Other countries in Asia - 12,45%.
  3. Countries of North America - 27,16.
  4. European countries - 10,49%.

Инвестидея: Genpact, потому что подходящий момент

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 is the growth of the service sector in the United States., in Asia and most of Europe. Obviously, that this will generate a demand for Genpact services in terms of outsourcing business functions, and just new orders, reception-related T-technologies. This is indicated by the fact, that in the USA there is a huge demand for programmers.

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 the demand for the services of companies like Genpact.

Inexpensive. Such indicators, like P / S and P / E, Genpact has significantly lower, than its larger competitors Infosys and Accenture. This makes its shares attractive enough for investors and allows them to hope for their growth..

Can buy. Large competitors may well buy the company. Genpact has a small capitalization compared to them - about $ 9.49 billion. May be, it will even buy a very similar to her, but the larger Cognizant.

Инвестидея: Genpact, потому что подходящий момент

Инвестидея: Genpact, потому что подходящий момент

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. Changing relationships with one of the major clients can negatively affect the company's reporting.

Accounting. The company has a very large amount of debts - $ 3.059 billion, of which 1.24 billion needs to be repaid within a year. In this case, the company pays 43 cent dividend per share per year, it is approximately 0,85% annual. It takes her 82.56 million a year - about 35,89% from her profits for the past 12 months.

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Basically, Genpact has enough money to cover urgent debts, and dividends: 752,58 mln on accounts and 916.366 mln counterparties' debts. But still there is a possibility, that in case of some force majeure payments will be cut. One can only hope, that Genpact shareholders will not sell shares due to the loss 0,85% annual.

But in the long term, a large amount of debt can scare off potential investors due to the expected rise in the cost of loans..

Price. The company is now trading near historic highs, so stocks can be a little staggering, despite the solid 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.: failure of contracts and rising costs. Plus the company - many of its employees work remotely, and Genpact shows high performance in such conditions.

Raj does not work. A significant part of the company's assets are located in India, which makes her very dependent on the situation in this country. clear, that the remoteness neutralizes possible negative consequences, eg, in case of strict quarantine. Still, the company may be dependent on the political situation in this developing country..

Labor costs. The demand for programmers means, what, Most likely, Genpact will face rising IT labor costs this half, and this can negatively affect her profit. Sure, you can console yourself with that, what the 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 is the bottom line

Shares can be taken now by 50,55 $. And then there are two options:

  1. keep up 58 $. I think, that we will reach this level in the next 12 months;
  2. keep shares next 15 years, to see, how a company will become an IT consulting giant. Or it will be bought by someone larger - which is a much more likely option..

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