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Infotel: Buy when it is still down

Publication Date: 31 Oct 2018 - By Manika Premsingh By Manika Premsingh
Actionable
Differentiated

Equity Fundamental Equity UK EU ex-UK Technology

An IT services and software provider with robust financial performance is worth considering as an investment, since the sector is only poised to grow in the next years. Paris stock exchange listed Infotel (EPA:INF) is no exception. Therefore, the steady fall in its share price for the past month and a half, in tandem with the overall equity markets’ sell-off, is a better time than any to buy the Infotel stock.

The closing price, when last observed for purposes of research, was at EUR 37.45, down by over 36% from the highest levels seen in the past year, and also down by almost 28% of past year’s average trading price. In fact, this level is close to the bottom, improved from there by only about 2%. With no clear impetus for a decline in price except the broader market sentiment, Infotel is now looking more attractive.

This, is especially so since its financials are robust. For the 9 months of 2018 (up to September 30), the company reported a robust growth of 12.2% in revenue to EUR 171m.  It has also shown consistent increases in revenue and income over the year, making it a safe bet. In 2017, the company reported revenue of EUR 209m, representing a 10% growth from the previous year. Its net income stood at EUR 16m, an increase of 15% from 2016. 

Infotel’s business is divided into two segments – services and software. Of these, the services segment accounts for a majority share of the revenue. For the 9 months of 2018, it accounted for EUR 164m of the sales, while software accounted for the remaining. The fact that the company’s major business is in IT services, which functions on contract renewals and can be sticky, is a positive from a long term perspective.

Infotel also works in a number of sectors like industry, services, financial services and the public sector, which makes it diversified holding in terms of risk. A large part of its revenues are derived from France, however, making it geographically concentrated. With ambitious plans for the future, it may just look into other geographies going forward, though. 

The company has rolled out a five-year strategic plan from 2017 onwards, which aims at doubling its size through integration of its acquisitions. This is an ambitious plan, given the steady but slower growth seen overtime.

However, if Infotel is able to achieve the goal, it will be significantly more valuable than it is at present. The price to earnings ratio (last 12 months) for the company is at around 16x, which is neither among the priciest or the cheapest among its peers. At any rate, the present valuation makes a case for investment in the company, in addition to its strong performance and future outlook. 

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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