Accenture – Diversified And Recession Proof (?)
|January 22, 2017||Posted by Oddmund Grøtte under Stock Analysis|
The history of Accenture dates back many years, but current structure was established only as late as 2001 when partnerships exchanged their interest in their partnerships for stocks in Accenture Ltd (currently registered in Ireland). Since then it has been listed on NYSE.
Accenture (ACN) is a company I would like to own. Unfortunately, I was too slow to react one year ago when stock was trading as low as 90 USD. After that the stock has been trading as high as 124. Right now it’s back at 115.
What I like the most with ACN is very low capital expenditures and its very “simple” business model: they pay talent/salary, rent office space and pocket the margin. Margins have been very stable: Operating margin has been between 11 and 13% over the last 10 years, and actually rising a bit. CAGR for EPS was 12.5% over the last 10 years, and 7.2% for F/CFC. Sales have grown 5% per year. Also worth noting is their buyback program: Over the last ten years buybacks has reduced the share count from 862 to 666 million. That is a reduction of 22,7 %, 2.5% per year. Accenture hands back basically all profits to shareholders via buybacks and dividend.
It’s return on equity has outperformed almost all other IT companies over the last 10 years. I believe they have a wide moat and their competitive advantage comes from client relationships, scale and scope, intellectual property, and a very powerful brand. According to Motley Fool, ACN works with 91 of the Fortune 100 Global companies and about 75% of the Fortune 500 companies. That is simply amazing. I would assume most of the relationships between company and consultant is somewhat sticky. 92 of the biggest 100 clients have been with ACN for more than 10 years. They also have the scale to implement big projects, all over the world. In addition they have a superior brand. On Interbrand 2013 list og Best Global Brands ACN was ranked 41. But of course, their business is highly competitive.
ACN has these divisions: Communications, Financial Services, Health and Public Service, Products (consumer products) and Resources (commodities). Income is more or less evenly split among these. Income is divided among North America (45%), Europe (35%) and growth markets (20%). It’s a truly global company.
Their accounting year ends in August. In August 2016 they reported EPS of 6.56 USD. That equals to a P/E of about 18 at today’s price of 115. Certainly not cheap, but still lower than the “market” for this quality company. Personally I would like to have it a bit cheaper, around 105. One possibility is to issue puts at for 105. Today you can issue puts with expiry in May for almost 2 USD a share, which equals 5.2% annual yield.
Below you find P/E, P/CF and dividend yield over the last ten years:
As you can see, currently ACN is a bit on the high side compared to last 10 years.
Right now dividend yield is about 2.2%. Not bad, and well covered by earnings and cashflow. To my knowledge they have no formal dividend policy. They lowered their dividend in 2011. Unlike many other stocks ACN distributes dividend only twice per year.
Accenture is also much more recession proof than the average company. Their sales increased both in 2008 and 2009 during the financial crisis. Both EPS and FCF rose in those two years:
ACN has a very clean balance sheet. There is no long-term debt and in August 2016 they had almost 5 bn in cash or liquid assets. Deducting all liabilities this means they have almost 5 USD per share in excess cash.
Accenture has the capacity to be a great compounder. The only minus is that the company is already big.
Currently I have no position in ACN but most likely will issue puts.
The Site has been prepared solely for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment. I am not a financial professional and accept no responsibility for any investment decision a reader makes. This article is for informational purposes only. The opinions expressed in this Site do not constitute investment advice and independent advice should be sought where appropriate. Neither the information, nor any opinion contained in this site constitutes a solicitation or offer to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. Information on this site is provided “as is” and “as available”. All information and opinions expressed herein are current as of publication and are subject to change without notice. This website will not be responsible for any loss or damage that could result from interception by third parties of any information made available to you via this site. Although the information provided to you on this site is obtained or compiled from sources we believe to be reliable, The Site cannot and does not guarantee the accuracy, validity, timeliness or completeness of any information or data made available to you for any particular purpose.