Successful Integration With Majorel Will Lead To Improved Margins And Cost Efficiencies

Key Takeaways

• Strategic focus on AI and regional expansion is set to drive revenue growth by enhancing service offerings and market presence.
  
• Integration with Majorel and successful share buybacks are expected to improve net margins, earnings, and shareholder returns.
  
• The company's reliance on Majorel acquisition synergies and AI investments poses potential risks to net margins amid currency fluctuations and operational efficiency pressures.

Catalysts

Engages in the customers consultancy services in France and internationally.

• Teleperformance's integration with Majorel is progressing well, with significant synergies expected to be realized, leading to improved net margins and cost efficiencies.
  
• The company's strategic focus on AI and data operations, including initiatives like Sanas and partnerships in AI, is set to drive future revenue growth by enhancing service offerings and tapping into new markets.
  
• Expanding operations in key growth regions such as India, the Philippines, and Africa is likely to contribute to revenue growth through increased market presence and operational scale.
  
• Investments in specialized training programs and strengthening business development and sales teams are poised to improve earnings through better market positioning and capturing new client opportunities.
  
• A successful share buyback program and strong cash flow generation position Teleperformance to enhance earnings per share and provide more returns to shareholders through increased dividends.

Teleperformance Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Teleperformance's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.1% today to 6.8% in 3 years time.
• Analysts expect earnings to reach €773.6 million (and earnings per share of €12.88) by about March 2028, up from €523.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.3x on those 2028 earnings, up from 10.5x today. This future PE is greater than the current PE for the GB Professional Services industry at 10.3x.
• Analysts expect the number of shares outstanding to decline by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.03%, as per the Simply Wall St company report.

Teleperformance Future Earnings Per Share Growth

Risks

• The loss of a longstanding visa services contract, noted as nonrenewable until 2028, could imply potential vulnerability in client retention, impacting future revenue stability.
  
• Significant reliance on the integration and synergies from the Majorel acquisition to achieve financial targets may pose risks if these synergies do not materialize as planned, potentially affecting net margins.
  
• Adverse foreign exchange impacts, particularly with fluctuations in currencies like the Egyptian pound and Turkish lira, have been noted as significant, which could continue to negatively affect revenue and cost structures.
  
• The company's ambitious investments in AI and technology partnerships, while potentially beneficial in the long term, carry execution risk. If these investments do not yield expected returns, they could adversely impact future earnings.
  
• The company's cost-cutting measures, including a voluntary departure plan in France, suggest pressures on operational efficiency. Such measures might not fully yield anticipated benefits, potentially affecting net margins if operational disruption or additional unexpected costs occur.

Valuation

• The analysts have a consensus price target of €140.588 for Teleperformance based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €210.0, and the most bearish reporting a price target of just €95.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €11.3 billion, earnings will come to €773.6 million, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of €92.66, the analyst price target of €140.59 is 34.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.