Beyond Trump (3/11) : TELEPERFORMANCE

We identified 11 companies able to go beyond Trump’s tweets and respect the following criteria :
  • Good «Fundamental Strength »
  • Market cap between €1.5bn and €20bn
  • Singular business model (capital light, excellent cash conversion, natural industry consolidator…)
Teleperformance provides companies and administrations with expert solutions in customer care (requests for information, subscriptions and signing-up,...), technical support (repair, optimisation, ...), customer acquisition (sales and marketing actions), social media and business process outsourcing. The global outsourced contact-centre industry excluding debt collection (a $25-30bn market according to Kaulkin & Ginsberg; only 3% of Teleperformance’s revenues) reached $72bn in 2017 (up 5.3% from 2016), with >40% of volumes generated in North America, including APAC and LatAm offshore (c.50% in the US and c.50% handled from APAC and LatAm). The more e-sales, the higher the need for customer care
  • «Customer care» market knows no limit. Digital makes it bigger
  • Only player with a world reach/ 265 languages
  • Industry consolidator with5% of the industry
  • AI robots are Teleperformance productivity tools, less labour intensive?
  • 50% cash conversion
  • Negative: shame about governance
H1 18 results roughly in line; FY18 revenues revised upwards H1 revenues in line. Revision upwards of the FY18 revenue guidance. Margin a bit low on forex and “English-speaking markets” but the impact should fade away in H2. Next step is the integration on Intelenet. Teleperformance reported H1 results. Revenues reached €2,070m (-0.6% reported, +8.3% lfl), EBITDA before non-recurring items €323m (-1.5%), EBITA before non-recurring items €246m (+0.1%), Operating profit €190m and net profit €123m (+6%). As a reminder, “lfl” neutralises forex movements. Net free cash flow reached €156m and net debt stood at €1,308m in H1 18 vs €1,326m at year-end 17. The group raised its guidance, now targeting a top-line growth of at least 7.5% lfl (vs +6% previously), keeping its 13.5% at least EBITA margin target unchanged, at constant scope. Long-term targets (revenues over €6bn, EBITA before non-recurring items of more than €850m, or 14.2% of revenue) are unchanged but will be updated when the Intelenet deal is completed in September. Results were in line in H1 18. The top-line is still strong, the significant forex impact taken aside, with the group able to deliver almost 9% in organic growth after +6.7% in Q1. Of course, forex has taken a big toll at the beginning of the year (€170m, mainly due to the US$, but also the Brazilian real or Colombian peso), but the half-year lfl growth kept being impressive and has never been below 7% since…early 2011. Not bad. As was expected, the development of new business sectors is continuing (historic telecoms clients are down to 23% of revenues vs 25% a year ago). The group took the opportunity to revise its revenue guidance upwards, in a sign that business is running well going into Q3. Margin-wise, the situation is quite simple: H1 18 margins are almost exactly those of H1 17. This may sound a bit disappointing, but it is worth recalling that forex also has an impact here (profit translation) for a total €16m impact at the EBIT level (70bp margin-wise). The rather weak “English-speaking market & Asia-Pacific” is also to blame (gross impact of €9m at the EBITA level, although lfl growth seems to be picking up a tick (+0.3% in Q1, +1.5% in Q2). Of course too, forex will be less of a worry in H2, explaining why the group feels comfortable with its 13.5% EBITA margin target, on top of a stronger top-line. We agree, and also remind that Intelenet will be integrated as of Q4 (already in our numbers). Altogether, the set of results is very decent, and the upward revision of the group’s guidance welcomed. We have no doubt that margins will be higher in H2. The results are roughly in line. Despite the fact the margin in H1 looks a tick lower than our yearly forecast, we have no doubt that the group will catch up in H2, on forex first and, second, a degree of recovery in the “English-speaking markets”. Intelenet will also add new prospects for the group.
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