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Tessi SA: Medium-term business prospects appear bright

Publication Date: 19 Jul 2019 - By Kshitija Bhandaru By Kshitija Bhandaru
Actionable
Differentiated

Equity Fundamental Equity UK EU ex-UK Technology

Tessi SA (EPA:TES) is a France-based company that offers information technology services to businesses. The company provides a range of solutions ranging from digitisation of document processes, payment systems, and back-office processing.

It also provides customer marketing services including activation and shopper marketing, relational marketing, client relationship management, datacenter services and cloud computing. With over 1000 clients, Tessi operates in 11 countries in Europe and Latin America.

As a services operator, the company believes that its solutions go beyond traditional business process outsourcing offering instead an “all-encompassing solution that only Tessi and a handful of companies in Europe are able to provide.”

Financials

The company’s turnover for the year 2018 was up by 10% increasing by €38.7m year-on-year to €427.8m. Documents services grew by €40.7m in the same period to €403.7m, an increase of 11.2%. The customer marketing segment reported a turnover of €24.1 million compared to €26.1m in 2017, a decline of 8%. Tessi’s net income from continuing operations in 2018 was €19.07m down 34.65% over 2017. 

The decrease was on account of increased net financial expense which touched €14.3m, impacted by €7.6m financial expense related to the refinancing of its bank debt. Earlier during the year, Tessi had refinanced all its financial debt, setting up a new senior debt of €165m. On the other hand, in 2017 net financial items were boosted by an income of €4.4m facilitated by interest rate renegotiations, resulting in a net financial expense of €2.4m for 2017.

Including net income from discontinued operations – which such as proceeds from the sale of CPoR Devises – Tessi’s consolidated net income (after deduction of €1m minority interests) was €48.8m compared to a consolidated net income of €33.9m in 2017. 

Tessi sold its 80% stake in CPoR Devises—which engaged in currency exchange and gold trading—to Loomis, a Sweden-based company in late 2018. Data analysis suggests TES share price has decreased by 30% year-over-year. In comparison, the IT industry in France returned -6.2% over the past year, while the overall France market returned 2.8% in the same period. TES had a market capitalisation of €338m, at the time of writing.

Conclusion: IT outsourcing continues to see a bright future across the globe backed by economic growth and increased focus on customer relations management, human resources, finance & accounting, and insurance.

A long-term investors might see perils in investing in a tech stock due to the fast-moving and dynamic competitive environment of the tech industry. However, IT services companies like Tessi stand to benefit from increasing digitalisation even as the company takes on an integrated approach bringing together all aspects of business management and aligning itself with the pace of growth of its clients.

Tessi’s growth strategy is primarily based on the acquisition of companies providing access to new markets and/or synergies with existing businesses. In line with this strategy, in 2018, Tessi disposed of CPoR in 2018 and acquired Owliance – enabling the company to expand its business in the personal protection insurance sector. All things considered, the stock appears to be a buy, albeit an eye needs to be kept on the operating climate impacting its business. 

More from Kshitija Bhandaru:

  • GoCompare.com: Promising stock in a competitive landscape, 11 July 2019
  • Buy or sell: What’s your move on Wavestone SA?, 9 July 2019
  • Frontier Developments PLC: Potential 'Game' changer for your portfolio, 24 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 Bhandaru

 

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