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Investor Guide – IT Services: Strong Q3 results for Accenture

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Accenture reported strong revenue growth of 27% in c/c in Q3FY22, beating the upper end of guidance. Growth was strong all round. Order book growth was good but lower than revenue growth at 15% in c/c. FY2022 revenue growth guidance was raised to 25.5-26.5%. Headcount addition was modest. Management indicated no change in decision-making and expects strong bookings and revenue growth in Q4FY22. Results were strong, though the focus of the Street has shifted to impact on business in a recessionary environment.

Strong broad-based revenue growth; moderate bookings growth

Accenture reported 27% c/c revenue growth and 22% in reported terms to $16.2 bn in Q3FY22 (May 2022 ending quarter). Revenue growth was strong across geos and verticals. Growth was led by CMT and products verticals that grew 31% each. Growth was good in financial services (24%) and health & public services (19%). Consulting grew 30%, while outsourcing grew 23%. Interestingly, segments which were perceived to be vulnerable delivered well—Europe (30% in c/c, helped partly by acquisitions) and products segments. EBIT margin increased by 10 bps y-o-y. Bookings growth was steady at 10% in reported terms and 15% in c/c.

Revenue guidance increased again; EPS guidance cut due to Russia effect

Accenture increased revenue growth guidance once again to 25.5-26.5% from 24-26% earlier, which was impressive. The guidance increase is large enough noting that just one quarter remains for completion of FY2022. EPS guidance was cut to $10.61-10.7 from $10.61-10.81, due to additional cross-currency headwinds and loss on disposition of Russia operations ($96.2 mn hit). Revenue growth guidance for Q4FY22 at 20-24% is remarkably strong. Management has also guided for strong order bookings.

Moderate growth in bookings

Bookings grew 10% to $17 bn (15% in c/c). In reported terms, consulting bookings grew 13.5%, while outsourcing was a lot more sedate at 6.1%. Book to bill ratio on LTM basis was 1.1 in consulting and 1.2 in outsourcing. We note that 15% c/c/ bookings growth, off a high base of 40% growth in the previous year, is a reasonably good outcome. In any case, the company has guided for solid bookings growth in Q4FY22.

No change in decision-making cycle

Demand is strong with no change in the decision-making cycle. The nature of conversations has changed depending on the industry served. For example, cost focus has increased in consumer goods industries.

Read-through from the results

The immediate impact of a deteriorating environment is not visible from the results or decision-making of clients. In fact, Accenture increased revenue growth guidance, reported stronger growth in Europe and delivered better growth in bookings in consulting (considered to be more vulnerable). In a way, the results and outlook are as good as it gets, especially in the context of lowered expectations, visible in 12% correction in stock price in the past three months (46% correction from the peak).

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