DAVA: Generative AI Partnerships Will Support Future Recovery Despite Guidance Reset

Analysts have reduced their price target on Endava, cutting it by approximately $3 to reflect missed growth guidance, persistent pressure on the outlook, and a more challenging setup for a near term recovery in client demand and pipeline conversion.

Analyst Commentary

Bullish Takeaways

Bullish analysts see the reset in growth expectations and price targets as potentially de-risking the valuation, limiting downside if execution stabilizes from here.
Some investors may view the Hold and Market Perform stances as a signal that, while upside is capped near term, the fundamental story is not broken and could re-rate with clearer signs of demand recovery.
The lower price target incorporates weaker pipeline conversion and client credit issues, which may allow for positive estimate revisions if management executes even modestly above the revised bar.

Bearish Takeaways

Bearish analysts highlight that repeated misses versus growth guidance undermine confidence in management’s ability to forecast and deliver, warranting a lower valuation multiple.
Expectations that shares will remain in the penalty box near term reflect concerns that a recovery in client demand and pipeline conversion could take longer than previously anticipated.
The downgrade in rating and cut in price target underscore a more challenging setup for growth, with limited near term catalysts to drive a meaningful re-rating.
Ongoing pressure in the company’s outlook, tied to client credit issues and softer performance, raises questions about execution risk and the durability of Endava’s growth profile.

What's in the News

Endava launched Dava.Rise, a new programme connecting high potential scale ups with global enterprises to accelerate innovation, offering mentorship, technical guidance, and go to market support while helping corporates adopt emerging technologies faster (company announcement).
Endava entered a multi year strategic partnership with Paysafe to deliver smarter payments and next generation community engagement, combining Endava’s engineering and AI capabilities with Paysafe’s global payments expertise under joint governance oversight (company announcement).
TRD U.S.A. expanded its multi year partnership with Endava, naming the firm Official IT Consulting Partner from 2026 and extending Endava’s presence into IMSA, with a focus on AI enabled accelerators to modernize TRD systems and enhance on track performance (company announcement).
Endava issued second quarter 2026 guidance calling for revenue of £179 million to £182 million, implying an 8.0 percent to 7.0 percent constant currency decline year over year, and full year 2026 revenue of £735 million to £752 million, a 4.5 percent to 2.5 percent decline versus the prior year (company guidance).

Valuation Changes

Fair Value has fallen significantly, moving from 13.77 to 10.72, indicating a materially lower intrinsic value estimate.
Discount Rate has edged down slightly, from 13.01 percent to 12.89 percent, reflecting a marginally lower perceived risk profile or cost of capital.
Revenue Growth assumptions are effectively unchanged, remaining at approximately 1.76 percent, suggesting no material shift in top line growth expectations.
Net Profit Margin assumptions are essentially flat, holding at around 3.29 percent, implying stable long term profitability expectations.
Future P/E has fallen significantly, from about 24.1x to 18.5x, pointing to a notable de rating in the multiple investors are expected to pay for future earnings.

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.

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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.

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