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Devoteam: Strong growth comes at some risk

Publication Date: 19 Oct 2018 - By Manika Premsingh By Manika Premsingh
Actionable
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Equity Fundamental Investment Strategies Equity EU ex-UK Technology

Paris stock exchange listed technology consulting and solutions firm – Devoteam (EPA:DVT) – is a company worthy of investors' consideration. Not only does it operate in the promising IT solutions segment, it has also shown commitment to its goal of growing rapidly by 2020. 

In 2016, Devoteam announced its strategic plan [for 2020] named ‘Scale’ aimed at ‘combining growth, profitability and innovation’ in its own words. Cut to 2018, and Devoteam is well on its way to delivering as per plan. This year alone, the company has made and/or finalised four acquisitions that will allow expansion on multiple fronts. 

One, the company's geographical footprint will increase, with acquisitions in Portugal, Germany, Spain and Belgium. Two, these acquired companies increase the offering set of Devoteam. Lisbon headquartered Bold, the latest acquisition, brings SMACS expertise, while Germany based Alegri International Services GmbH brings in digital workplace consulting and agile IT solutions.

The last two – New Bic and Paradigmo – in Spain and Portugal, respectively, bring in cybersecurity expertise. At present over half the company’s revenues are accounted for by France. Acquisitions in major European economies will allow Devoteam to even out the geographical revenue structure. 

The company’s financials also look strong: In the first half of 2018, revenues came in at EUR 306.5m, an increase of 18.4% from the corresponding period of the previous year. Devoteam’s outlook for 2018 as a whole is even better.

It expects a 25% topline growth to EUR 640m. Both its operating income (at EUR 34m) and net income (EUR 16.8m) have also shown improvements from the first half of 2017 and it can be inferred from the company’s outlook that they will continue to remain healthy going forward as well. 

With this as the backdrop, the recent dip in the share price of the company, would be a good chance for interested investors to buy the stock. For October, 2018 on average, the share price has averaged at EUR 104.6, which is almost 7% below the September, 2018 average levels and 10.3% below the maximum level in the past 52 weeks. 

Though, it is worth pointing out that the company is that there are risks to the outlook as well. The price to earnings ratio is 29.8x, which makes the stock pricier than all its peers. But, given the company’s rapid growth and maintenance of financial health so far, this is possibly because it attracts higher valuations than similar companies. 

The next risk is with respect to the financing of its acquisitions, details of which, are entirely clear. Further, how the consolidated operations from all the acquisitions, and one sale as well, will play out remains to be seen. For now though, there is more to be positive about the Devoteam story than not. 

  

  

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.

Manika Premsingh

 

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