Posts about Accenture
Hello! This week I will take the opportunity to value Accenture. Over the past decade, they have achieved impressive returns with a compounded annual growth rate (CAGR) of 15.74%. This overperformed the S&P500, which had a return of 10.16%, and outperformed the VT, which had a return of 8.18%.
Total Returns against markets: https://imgur.com/a/L8aSfDg
The company's growth is attributed to increased revenues, which increased by 11.49% CAGR in the last 5 years, improved operational margins that went from 14% to 15.3% today, and through dividends and share buybacks, which increase their return on investment and increasing multiples.
| Revenue CAGR L5Y | EPS CAGR L5Y | Dividends CAGR L5Y |
|---|---|---|
| 11.49% | 14.62% | 10.48% |
Accenture plc operates as a consulting and outsourcing company. The company works for a lot of different companies in different industries all over the world. The type of work that the company does is consulting and outsourcing, with 55% of revenue coming from consulting and 45% from outsourcing.
| Industry Groups Share of Revenue | Average 2018 - 2022 |
|---|---|
| Communications, Media & Tech | 19% |
| Financial Services | 20% |
| Health & Public Service | 18% |
| Products | 29% |
| Resources | 14% |
| Industry Groups Growth | Average 2018 - 2022 |
|---|---|
| Communications, Media & Tech | 13% |
| Financial Services | 9% |
| Health & Public Service | 13% |
| Products | 12% |
| Resources | 8% |
| Total | 11% |
• Revenue growth rate for the next 5 years will be 7.5%, decreasing slowly from year 6 to 10 to the risk-free rate (3.91%).
• Operating Margin: The operating margin is forecasted to increase from 15.27% in 2022 to 16% in 2027.
• Cost of Capital: The company's cost of capital stands at 9.70%, with 98.44% of it being equity with a cost of 9.79%, and 1.56% being debt with a cost of debt of 4.15%.
• Terminal Growth Rate: The terminal growth rate is anticipated to be the risk-free rate of 3.91%.
• Terminal Cost of Capital: The terminal cost of capital is calculated as the risk-free rate plus 4.5%, equating to 8.41%.
• Terminal Return on Invested Capital: The terminal return on invested capital is expected to be more than 5% higher than the cost of capital, as the company has shown that it can return a high return on invested capital (34.51% in 2022), so it will be 13.41%.
• Value per Share: The value per share is estimated to be $239.08.
• Market Price Today: The current market price of the company is $270.00.
Based on the above calculations, the company is overvalued. I would consider a good opportunity to buy some Accenture plc around $230. This company has had remarkable growth in the last 10 years, and I consider it a high-quality company as it is growing, unleveraged, profitable, and returns capital to shareholders through dividends and buybacks.
Macroeconomy:
• Accenture's business is dependent on the health of the global economy and market conditions. Economic downturns, geopolitical instability, or other market disruptions could impact the demand for the company's services and its ability to generate revenue.
Dependence on key clients:
• Accenture generates a significant portion of its revenue from a small number of large clients. Dependence on key clients could increase the company's vulnerability to client-specific risks such as economic downturns or client insolvency.
According to my discounted cash flow model analysis, the market price of Accenture plc is overvalued. The company has a track record of growth and operates in an industry that may face challenges in the short term but will remain in a strong position and as such is an attractive company at a right price. I consider this company high quality and as such I don’t expect a big margin of safety so around $230 I will be happy to own.
However, there are several risks to consider, including the economy and the high dependence on key clients. Despite these challenges, Accenture remains in a good position in the industry and in the market to provide good returns for investors.