Topics: Outsourcing, Revenue, Management consulting Pages: 26 (7511 words) Published: March 22, 2013
Deutsche Bank Markets Research
Rating Company

North America

Accenture Plc

5 December 2012

Company Update
Price at 5 Dec 2012 (USD) Price target 69.60 75.00 71.39 - 51.74

United States

Computer Services & IT Consulting

Reuters ACN.N

Bloomberg ACN UN

Exchange Ticker NYS ACN

52-week range

Has Consulting Bottomed?
Share gains to drive above-industry growth On December 19, we estimate ACN to post 1Q13 revs of $7.34bn (+3.8% Y/Y, +6.8% cc) and EPS of $1.06. With the IT spending environment remaining mixed as 2013 nears (early indications suggest flat budgets next year), we continue to believe that ACN will continue above-market growth from share gains through transformational engagements and industry-specific BPO growth. The key for further upside in ACN shares will be a clear bottoming of Consulting with an expected rebound looking more likely in 2HFY13. We believe ACN will reiterate FY13 guidance, potentially shading the high end of its EPS range. We maintain our Buy rating and $75 target price. Consulting poised to ramp next year with continued healthy Outsourcing

Bryan Keane Research Analyst (+1) 415 617-4246 bryan.keane@db.com Ashish Sabadra Research Associate (+1) 415 617-3329 ashish.sabadra@db.com Matt Diamond Research Associate (+1) 415 617-3345 matt.diamond@db.com

After calling for a moderate Consulting slowdown in the first half of FY13, ACN now expects the practice to ramp through the year with bookings converting to revenues at a slower rate (longer-term projects). We see Consulting growing at 1.3% cc for the quarter before slightly improving to 1.5% in 2Q13 and 2.5% in 2H13 as clients continue business-wide transformational programs. Outsourcing in our view should maintain its healthy growth rate, and we expect a ninth consecutive quarter of double-digit growth at 11.5% cc. On bookings, we expect 2.0% Y/Y growth to $7.9bn ($4.3bn Consulting, $3.7bn Outsourcing) as ACN’s stellar 4Q bookings (up 9% Y/Y) included pulled-forward engagements expected this quarter. ACN’s TTM book-to-bill of 1.07x for Consulting and 1.27x for Outsourcing should also buoy rev growth as bigger transformational engagements potentially bring more quarter-to-quarter bookings lumpiness. Headcount growth to slow as attrition lessens and supply-demand equilibrium improves

Price/price relative
80 70 60 50 40 30 12/09 6/10 12/10 6/11 12/11 6/12

Accenture Plc S&P 500 INDEX (Rebased)

Performance (%) Absolute S&P 500 INDEX

1m 2.5 -0.7

3m 13.4 0.3

12m 17.3 11.9

Given the reduction in ACN’s attrition rate from 14% in 4Q11 to 12% in 4Q12 and overall better supply-demand balance (potentially auguring well for GMs), we see headcount growth of 7.8% Y/Y to ~264k (ACN intends to hire slightly fewer than 60k gross heads in FY13). We estimate operating margins to reach 14.0% (+10 bps Y/Y) on stable contract profitability and investment timing, falling within the guided range of 14.0-14.1%. Valuation and risks

For 2QFY13, we see revs of $7.2bn (+6.2% Y/Y, 6.0% cc) as Consulting improves slightly and Outsourcing maintains a double-digit growth rate. We believe ACN should trade at a premium to peers due to share gains, significant FC and ROIC, a material dividend, and double-digit EPS growth. Our $75 target price is based on 17x our CY13 EPS of $4.40, a premium to ACN’s 2-year average forward P/E. Risks include IT budget cuts and spending indecision. Forecasts And Ratios Year End Aug 31 FY EPS (USD)

Source: Deutsche Bank estimates, company data

2011A 3.40

2012E 3.84

2013E 4.29

________________________________________________________________________________________________________________ Deutsche Bank Securities Inc. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does...
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