Plenty more room to grow in the business process outsourcing space
Paris-listed Teleperformance SE is a company that offers customer relationship management services, as part of the overall business process outsourcing industry. The company operates call centres, conducts programmes to attract new customers, offers customer service and technical support services, collects debts, offers market research services, conducts telemarketing, and develops customer relationship management software.
The salient points of the business are that it is a worldwide leader in the outsourced customer and citizen experience management market. Teleperformance is a global leader in the so-called digital integrated business services space, as it partners clients on their digital transformation journey and specialises in designing and executing tailor-made outsourcing solutions. The company has over four decades of deep, industry-specific expertise and services innovation, and is a well-established name in the industry.
Teleperformance services a well-diversified mix of industry verticals, including government, travel & hospitality, retail & e-commerce, banking & financial services, healthcare, insurance, media & entertainment, technology, telecommunication, utilities and consumer goods.
In total, Teleperformance serves over 1,000 businesses and governments worldwide, and its clientele includes 68% of the Forbes top 25 public companies in the world.
In terms of business opportunity, the business process outsourcing industry, as a whole, is estimated to be over US$260 billion ($344 billion). Out of this huge addressable market, Teleperformance commands a market share of just 3%. In short, there is plenty of room for Teleperformance to grow its share further in this industry. There are many reasons to support this, such as being consistently ranked by industry analysts as the world leader in this industry at an aggregate level as well as across the countries and verticals it serves.
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Teleperformance has delivered above-average growth rates for its revenue for over 40 financial quarters despite the competitive environment. Its average growth rate was around 10%, versus the industry average of 4%. Profitability throughout this period was also solid, with Ebita margins improving from 9% 10 years ago to around 15% currently, and is expected to grow to around 16% by 2025. Customer satisfaction, which is a very important business metric, has also consistently improved over the years, through its increased client proximity and setting up of a dedicated global client services organisation. Customer satisfaction scores have increased by more than 50% from 2019, reflecting the company’s better competitive advantage.
Teleperformance is committed to ESG, as it was one of the first few companies in the industry to promote it long before this commitment was identified as a fundamental factor by the wider corporate and investment community. Teleperformance also signed the United Nations Global Compact in 2011 and has had partnerships with Unicef, the Red Cross, Feed the Children, and multiple NGOs in the countries in which it operates.
The company’s one-year total return was –28.7%, although its results were good. Teleperformance has had over eight semi-annual periods of positive income, operating cash flow and free cash flow, as shown in the chart. In terms of financial safety, Teleperformance has decent liquidity with a current ratio of 1.4 times, and solvency is decent as well with a net debt-to-equity ratio of 0.84 times and an interest coverage ratio of over 11 times. In terms of yield, the company’s earnings, operating cash flow and free cash flow yields are 3.9%, 4.8% and 5.9% respectively, which is far more attractive than the risk-free rate of 2.5%. Teleperformance also trades cheaply relative to global peers, with a 9% and 22% discount for its P/E and EV/ Ebitda ratios respectively, indicating that it is a relatively attractive pickup.
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The company has 33 “buy” calls, no “hold” calls, and no “sell” calls, with a consensus target price of around 35% above its current trading price of EUR250.4 ($357). Based on our in-house valuations of the company, we believe that the intrinsic value of the company is around 25% above its current trading price. Teleperformance has a solid financial track record and strong financials, along with a good outlook, and the call is to buy this undervalued company.
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Photo Credit: Bloomberg
Data for Charts & Tables were sourced from Bloomberg; Stock returns include capital adjustments and dividends, and excludes currency exchange fluctuations.
