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WNS (Holdings) Ltd. (WNS)
Sell Equity Research
Revenue trend improving, but operating metrics remain weak; Sell
What's changed
We are updating our estimates post 4Q results. For FY2012, we trim our
adjusted EPS (ex. stock comp and amortization) by $0.03 to $1.01 (flat yoy)
reflecting higher revenue (+0.6%) and margin (+60 bp) assumptions, offset
by higher taxes (+$8 mn). For FY2013, we trim our adjusted EPS by $0.03 to
$1.12 (+11% yoy) reflecting similar changes. Our FY2012/FY2013 GAAP EPS
now stand at $0.20/$0.32 ($0.22/$0.35 prior). We introduce a FY2014
adjusted EPS of $1.26 (+12% yoy) and GAAP EPS of $0.46. We maintain our
12-month price target of $10 given limited adjusted EPS changes.
Implications
We maintain our Sell rating on WNS shares on limited prospects for
earnings growth reacceleration in the near term and low investment
ranking within the Consulting and Outsourcing group (4th quartile among
19 stocks). A confluence of improving enterprise spending backdrop,
easing comparisons, and FX benefit should provide support to WNS’
revenue profile – our forecast implies a return to positive revenue growth
after 4 consecutive quarters of yoy decline; however, the shares will likely
continue to underperform through 2011, given lagging operating metrics
(flattish headcount trends and high employee attrition) and execution risk
from a back-end loaded FY2012 outlook. We acknowledge that
management’s efforts in reinvigorating the salesforce and penetrating
existing clients should bring incremental opportunities and help bridge the
gap between the growth for WNS and industry peers over time, and would
be more constructive if further signs of revenue acceleration emerge.
Valuation
Our 12-month price target of $10 is based on a weighted average model
incorporating a sector relative investment framework, CY2011 P/E,
EV/EBITDA, and a M&A value; it implies a CY2011 P/E of 9.7X adjusted EPS.
Key risks
Higher volume growth, pricing, and/or operating leverage and M&A.
INVESTMENT LIST MEMBERSHIP
Americas Sell List
Coverage View: Attractive
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
WNS (Holdings) Ltd. (WNS)
Sell Equity Research
Revenue trend improving, but operating metrics remain weak; Sell
What's changed
We are updating our estimates post 4Q results. For FY2012, we trim our
adjusted EPS (ex. stock comp and amortization) by $0.03 to $1.01 (flat yoy)
reflecting higher revenue (+0.6%) and margin (+60 bp) assumptions, offset
by higher taxes (+$8 mn). For FY2013, we trim our adjusted EPS by $0.03 to
$1.12 (+11% yoy) reflecting similar changes. Our FY2012/FY2013 GAAP EPS
now stand at $0.20/$0.32 ($0.22/$0.35 prior). We introduce a FY2014
adjusted EPS of $1.26 (+12% yoy) and GAAP EPS of $0.46. We maintain our
12-month price target of $10 given limited adjusted EPS changes.
Implications
We maintain our Sell rating on WNS shares on limited prospects for
earnings growth reacceleration in the near term and low investment
ranking within the Consulting and Outsourcing group (4th quartile among
19 stocks). A confluence of improving enterprise spending backdrop,
easing comparisons, and FX benefit should provide support to WNS’
revenue profile – our forecast implies a return to positive revenue growth
after 4 consecutive quarters of yoy decline; however, the shares will likely
continue to underperform through 2011, given lagging operating metrics
(flattish headcount trends and high employee attrition) and execution risk
from a back-end loaded FY2012 outlook. We acknowledge that
management’s efforts in reinvigorating the salesforce and penetrating
existing clients should bring incremental opportunities and help bridge the
gap between the growth for WNS and industry peers over time, and would
be more constructive if further signs of revenue acceleration emerge.
Valuation
Our 12-month price target of $10 is based on a weighted average model
incorporating a sector relative investment framework, CY2011 P/E,
EV/EBITDA, and a M&A value; it implies a CY2011 P/E of 9.7X adjusted EPS.
Key risks
Higher volume growth, pricing, and/or operating leverage and M&A.
INVESTMENT LIST MEMBERSHIP
Americas Sell List
Coverage View: Attractive
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