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Buy or sell: What’s your move on Wavestone SA?

Publication Date: 09 Jul 2019 - By Kshitija B. By Kshitija B.
Actionable
Differentiated

Equity Fundamental Equity UK EU Financial Services Technology

Wavestone SA (EPA:WAVE) is an international management and IT consulting firm headquartered in France. The company offers consulting services in areas of finance, risk & procurement, innovation management & funding, marketing, sales & customer experience and operations & supply chain. Its top clients include Société Générale and BNP Paribas.

Formerly known as Solucom, the company rebranded itself in 2016 after it combined with Kurt Salmon’s European business. Following this, Wavestone outlined ambitious growth plans in a bid to establish itself as the number one transformation consultant by 2021.

In pursuit of this goal, Wavestone has committed itself to international development and targeted acquisitions in the range of €5m - €20m of revenues, primarily in the UK or the US. In early 2018, the company acquired Xceed Group—a London-based technology consultancy firm, and later the same year, it acquired Paris-based Metis Consulting, a supply chain specialist. As part of its international development program, Wavestone recently announced a partnership with Q_PERIOR, a German consulting firm.

Key Performance Indicators

Wavestone’s annual revenue in 2018 rose 9% to €391.5m from €359.9m in the same period in the preceding year. After accounting for €2.3m in amortisation of client relationships, and €0.5m in other operating expenses, operating income in 2018 increased 12% year-on-year (from €46.8m), coming in at €52.4m.

EBIT margin remained constant at 14.1%. Net income increased by 16% to €31. In 2018, Wavestone generated cash flow from operations of €32.6m, up 4.5% year-on-year. Wavestone’s consultant utilisation rate, a key performance indicator specific to its industry, declined to 75% in 2018 from 77% in the previous year. 

Wavestone acknowledged that while it saw a rise in the value of its consulting services – which helped boost its sales prices (up 2.8%) and enabled it to reach an average daily rate of €872 (compared with €848 the previous year) – an insufficient rate of order uptake lead to a decline in its consultant utilisation rate.

The company noted that demand for its consulting services has especially felt the strain in the banking sector against a backdrop of low interest rates and pressure on corporate and investment banking activities. Increase in economic uncertainty hasn’t helped matters either.

Conclusion: Wavestone had a market capitalisation of €527m, at the time of writing while its share price has declined 37% year-on-year. Expectations from three analysts covering Wavestone show earnings per share estimated to increase from €1.55 (as at 31 March 2019) to €1.78 over the next three years.

While earnings of €31m have increased 16% annually, it has been lower than its 5-year average earnings growth rate of 23%. That said, Wavestone’s earnings growth in 2018 has exceeded France’s IT industry growth in the same period (6.6%) as well as the overall market (5.1%). With a beta of 1.14, WAVE tends to move up when the market is going up, and down when it’s going down. Potential investors may want to ascertain the overall market, as well as the overall performance of the company when considering the stock.

More from Kshitija Bhandaru: 

GoCompare.com: Promising stock in a competitive landscape, 11 July 2019
Frontier Developments PLC: Potential 'Game' changer for your portfolio, 24 June 2019
Computacenter PLC: Should this growth stock be in your tech portfolio? 14 June 2019

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Kshitija B.

 

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