Last Update 29 Oct 25

Fair value Decreased 0.35%

Narrative Update on Endava

Analysts have reduced their price target for Endava from $17 to $11. They cite a cautious FY26 growth outlook and anticipated near-term margin pressures, despite optimism for long-term benefits from Gen AI investments.

Analyst Commentary

Bullish Takeaways

Bullish analysts point to Endava's ongoing investments in Gen AI as positioning the company for potential long-term growth.
The expanding partner ecosystem is viewed as a strategic advantage that could increase scale and diversify revenue streams over time.
There is optimism that today's investments and partnerships may drive improved fundamentals once macro conditions stabilize.

Bearish Takeaways

Bearish analysts express concern over the company's FY26 growth forecast, which indicates minimal top-line expansion and reflects what they see as a "transitional year."
There is caution regarding potential near-term margin pressures, which could challenge the company's ability to execute effectively and meet valuation expectations.
Uncertainty around the timing and extent of returns from Gen AI investments may limit upside potential in the near future.

What's in the News

Endava completed the repurchase of 6,722,491 shares, representing 11.35% of its shares outstanding, for $111.2 million under the buyback announced on February 20, 2025 (Key Developments).
Between May 1, 2025 and August 29, 2025, the company repurchased 5,661,114 shares, accounting for 9.57% of its shares, for $88.15 million (Key Developments).
Endava issued earnings guidance for the first quarter and full fiscal year 2026, forecasting quarterly revenue of £181.0 to £183.0 million, which is a year-over-year decrease of 5 to 6% in constant currency terms (Key Developments).
For fiscal year 2026, Endava expects revenue between £750.0 million and £765.0 million, indicating a revenue change of between minus 1.5% and plus 0.5% year over year in constant currency (Key Developments).

Valuation Changes

Fair Value estimate eased marginally from £17.14 to £17.08 per share.
Discount Rate decreased slightly from 11.84% to 11.59%.
Revenue Growth projection declined from 1.98% to 1.81%.
Net Profit Margin edged down from 2.52% to 2.49%.
Future P/E ratio increased modestly from 37.48x to 37.89x.

Focus on AI capabilities and long-term deals may drive revenue growth, expanding the addressable market and providing earnings stability.
Acquisitions and share buyback program aim to boost operational efficiencies and enhance shareholder value through synergies and increased EPS.
Economic uncertainty and project delays may lead to unpredictable revenue streams and affect Endava's overall profitability and operational efficiency.

Catalysts

About Endava

Provides technology services in North America, Europe, the United Kingdom, and internationally.What are the underlying business or industry changes driving this perspective?

Endava's focus on AI-enabled capabilities, such as Morpheus and Compass, positions it to leverage the digital shift, potentially expanding its addressable market and driving future revenue growth through AI-driven services.
The company's strategy of securing larger and longer-term deals, particularly in core modernization projects, is expected to contribute to meaningful revenue growth and stability in earnings, despite longer sales cycles.
Endava's acquisition and integration of GalaxE is anticipated to enhance operational efficiencies and support margin improvement, as it realizes cost synergies and operational alignment.
The introduction of a $100 million share buyback program signals a strategic effort to enhance shareholder value, which may boost earnings per share by reducing the number of shares outstanding.
As Endava continues to develop AI applications across various sectors, such as pharmaceuticals, insurance, and automotive, it opens opportunities for new revenue streams and the potential for improved net margins through innovative, high-value solutions.

Endava Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Endava's revenue will grow by 4.5% annually over the next 3 years.
Analysts assume that profit margins will increase from 2.3% today to 7.0% in 3 years time.
Analysts expect earnings to reach £62.0 million (and earnings per share of £1.05) by about September 2028, up from £18.2 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.4x on those 2028 earnings, down from 34.9x today. This future PE is lower than the current PE for the US IT industry at 32.4x.
Analysts expect the number of shares outstanding to grow by 0.19% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.35%, as per the Simply Wall St company report.

Endava Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The slower sales cycle and elongated ideation to production cycle for AI-led projects could lead to less predictable revenue streams and potentially impact revenue growth if projects take longer to materialize.
The macroeconomic challenges in key regions like the U.K. and Rest of World, as well as reduced spending from clients due to economic uncertainty, could negatively affect Endava's revenue and earnings.
Endava's high reliance on large-scale projects and the slower scaling of these projects may lead to volatility in revenue realization and impact net margins if clients delay commencements.
A decrease in revenue from specific verticals, such as payments and TMT due to client pullbacks, could lead to uneven revenue distribution across sectors and affect overall profitability.
Integration challenges and costs associated with new acquisitions, like GalaxE, may affect operational efficiency and net margins in the short term if synergies do not materialize as planned.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $23.486 for Endava 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 $42.8, and the most bearish reporting a price target of just $14.06.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £889.6 million, earnings will come to £62.0 million, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 10.4%.
Given the current share price of $14.38, the analyst price target of $23.49 is 38.8% 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Long-Term AI Investment Will Drive Revenue Diversification Despite Transitional Year