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Alpha Financial Markets Consulting plc
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=== Relative valuation approach === ==== What's the expected return of an investment in the company using the relative valuation approach? ==== ==== What are the assumptions used to estimate the return figure? ==== ====What are the assumptions used to estimate the return figure?==== {| class="wikitable" |+Key inputs !Description !Value !Commentary |- |Which type of multiple do you want to use? |Price/earnings to growth |Mainly given the relatively low amount of fixed capital expenditure (as a proportion of revenue) of companies within the consultancy industry (for example, currently, Alpha's fixed capital expenditure as a proportion of revenue is around 0.5%), we suggest valuing the company using the price/earnings ratio. However, we feel that to take into account the different business lifecycle stages of its peers (and, therefore, the different growth stages of its peers), the most suitable valuation multiple to use is the price/earnings to (earnings) growth multiple (or the PEG multiple, for short), rather than the price/earnings multiple. Another multiple which we think it's worth looking at is the (sales) growth-adjusted EV/sales, mainly because the multiple takes into account the different leverage levels of the peers (whereas the PEG does not, at least not directly; one is able to argue that the leverage levels are reflected indirectly in the earnings growth rates). |- |In regards to the PEG multiple, for the earnings figure, which year to you want to use? |Year 1 |Research suggests that when using the relative valuation approach, it's best to use a time period of 12 months or less. Accordingly, for the earnings figure, we suggest using Year 1, which is 22 pence per share. |- |In regards to the PEG multiple, for the earnings growth figure, which year(s) do you want to use? |Year 2 to 4, from now |We suggest that for the earnings growth figure, it's best to use Year 2 to 4, which equates to a compound annual growth rate (CAGR) of 30%. |- |In regards to the PEG multiple, what multiple figure do you want to use? |1.04x |Here, we suggest using a multiple of 1.04x, which we believe is in-line with the multiples of Alpha's peers. |- |Which financial forecasts to use? |Proactive Investors | The only available forecasts are the ones that are supplied by us (the forecasts can be found in the financials section of this report), so we suggest using those. |- |What's the current value of the company? |$659 million |As at 26th January 2023, the current value of the Alpha FMC company is $659 million (or Β£554 million). |- |Which time period do you want to use to estimate the expected return? |Between now and one year time |Research suggests that when using the relative valuation approach, it's best to estimate the expected return of the company between now and one year time. |} {| class="wikitable" |+Key inputs !Description !Value !Commentary |- |Which type of multiple do you want to use? |Growth-adjusted EV/sales |For the numerator, we believe that to account for the different financial leverage levels of its peers, it's best to use enterprise value (EV), rather than price. For the denominator, we believe that because we expect Alpha FMC to reinvest almost all of its revenue back into the business over the five year forecast period and, therefore, its earnings are expected to be abnormally low over the period, it's best to use sales. Accordingly, we suggest valuing the company using the EV/sales ratio. However, we feel that to take into account the different business lifecycle stages of its peers, the most suitable valuation multiple to use is the (sales) growth-adjusted EV/sales multiple, rather than the EV/sales multiple. |- |In regards to the growth-adjusted EV/sales multiple, for the sales figure, which year to you want to use? |Year 1 |Research suggests that when using the relative valuation approach, it's best to use a time period of 12 months or less. Accordingly, for the sales figure, we suggest using Year 1, which is ccc pence per share. |- |In regards to the PEG multiple, for the earnings growth figure, which year(s) do you want to use? |Year 2 to 4, from now |We suggest that for the sales growth figure, it's best to use Year 2 to 4, which equates to a compound annual growth rate (CAGR) of 30%. |- |In regards to the PEG multiple, what multiple figure do you want to use? |0.43x |Here, we suggest using a multiple of 0.43x, which we believe is in-line with the multiples of Alpha's peers. |- |Which financial forecasts to use? |Proactive Investors | The only available forecasts are the ones that are supplied by us (the forecasts can be found in the financials section of this report), so we suggest using those. |- |What's the current value of the company? |$659 million |As at 26th January 2023, the current value of the Alpha FMC company is $659 million (or Β£554 million). |- |Which time period do you want to use to estimate the expected return? |Between now and one year time |Research suggests that when using the relative valuation approach, it's best to estimate the expected return of the company between now and one year time. |} {| class="wikitable" |+ !Name !Bloomberg ticker !Market capitalisation (USD,billion) !Primary exchange !Adjusted EV/sales !PEG !P/E !Earnings growth rate (%) !Sales growth rate !Adjusted beta |- |Alpha Financial Markets Consulting |AFM LN |659 |London |7.49 | | | |29% |1.07 |- ! colspan="10" |UK professional services |- |JTC |JTC LN |1,346 |London |23.19 | | | |24% |1.11 |- |XPS Pensions |XPS LN |425 |London | 30.16 | | | |8% | 0.73 |- |Gateley |GTLY LN |293 | London |15.73 | | | |10% |0.61 |- |Keystone Law |KEYS LN |166 |London |9.01 | | | |18% |0.63 |- | Elixirr International |ELIX LN |294 |London |6.54 | | | |45% |1.07 |- |Kin and Carta |KCT LN |493 |London | 10.47 | | | |14% | 0.90 |- |MJ Hudson |MJH LN |N/A |London | | | | |26% | |- |'''Median''' | |424.53 | London |10.47 | | | |21% |0.90 |- ! colspan="10" |Global consultancies |- |Accenture | ACN US |181,070 | New York |19.99 | | | |13% |1.19 |- | Cognizant Technology Solutions |CTSH US |33,091 |NASDAQ GS |32.76 | | | |5% |0.99 |- |CGI Inc. |GIB US |20,307 |New York |102.10 | | | |2% | 0.80 |- |Genpact |G US |8,857 |New York |20.74 | | | |10% |0.86 |- | Capgemini |CAP FP |32,648 | EN Paris | | | | |11% |1.17 |- |Reply SpA | REY IM |4,941 |BrsaItaliana |16.54 | | | |12% |0.91 |- |DXC Technology |DXC US |6,520 |New York |(8.99) | | | | -8% |1.12 |- |GFT Technologies |GFT GY |1,147 |Xetra |10.94 | | | |12% |1.26 |- |Atos SE |ATO FP |1,436 |EN Paris |51.54 | | | |1% |1.59 |- |Tata Consultancy Services |TCS IN |153,821 |Natl India |51.05 | | | |10% |0.89 |- |Infosys |INFO IN |78,994 |Natl India |27.75 | | | |14% |0.91 |- |Wipro |WPRO IN |27,006 |Natl India |18.26 | | | |11% |0.94 |- |HCL Technologies |HCLT IN |37,344 |Natl India |25.42 | | | |10% |0.92 |- |'''Median''' | |27,006 | |23.08 | | | |10% |0.94 |} {| class="wikitable" |+Discount/premium to peers !Name !Market capitalisation (USD,billion) !Adjusted EV/sales !Adjusted EV/EBITDA !Adjusted EV/EBIT !Adjusted P/E !Sales growth rate !Adjusted beta |- |UK professional services |55% |(28%) |(61%) |(68%) |(34%) |40% |19% |- |Global consultancies |(98%) |(68%) |(76%) |(76%) |(65%) |184% |14% |} {| class="wikitable" |+ !Name !2Y Corr !Mkt Cap (USD) !BF P/E !BF EV/EBITDA !BF EV/EBIT !BF EV/Rev !LF P/BV |- |Alpha Financial Markets Consul | |658.12M |21.0x |11.3x |13.0x |2.2x |3.6x |- |Current Premium to Comps Mean | | |19% |3% | -5% |4% | -15% |- |Mean (Including AFM LN) | |41.96B |17.6x |11.0x |13.7x |2.2x |4.2x |- | | | | | | | | |- |Capgemini SE |0.3 |32.63B |14.8x |9.6x |12.1x |1.5x |3.3x |- |GFT Technologies SE |0.24 |1.11B |18.7x |10.9x |13.8x |1.2x |5.3x |- |Tata Consultancy Services Ltd |0.24 |153.05B |26.4x |18.2x |19.8x |4.9x |11.5x |- |Atos SE |0.23 |1.45B |11.0x |4.9x |44.1x |0.4x |0.3x |- |Infosys Ltd |0.21 |77.81B |22.8x |15.6x |17.6x |3.9x |8.5x |- |CGI Inc |0.21 |20.23B |16.4x |10.9x |13.2x |2.2x |3.7x |- |Reply SpA |0.2 |4.93B |21.9x |12.7x |15.2x |2.0x |5.3x |- |Cognizant Technology Solutions |0.18 |33.77B |14.0x |8.5x |10.1x |1.6x |2.8x |- |Wipro Ltd |0.18 |26.78B |16.9x |10.6x |12.9x |2.0x |2.9x |- |Accenture PLC |0.17 |182.82B |23.3x |14.5x |17.4x |2.7x |7.6x |- |HCL Technologies Ltd |0.17 |37.12B |18.6x |11.4x |14.0x |2.6x |4.7x |- |DXC Technology Co |0.14 |6.50B |6.4x |3.7x |7.0x |0.7x |1.4x |- |Genpact Ltd |0.13 |8.59B |15.5x |11.6x |12.6x |2.1x |5.0x |} {| class="wikitable" |+ !Name !Rev - 1 !EPS - 1 !P/E !ROE !Dvd 12M |- |Alpha Financial Markets Consul |61.11% |5.96% |29.38 |9.44% |2.41% |- |Accenture PLC |21.89% |22.99% |24.91 |32.90% |1.51% |- |Cognizant Technology Solutions |11.14% |38.06% |14.6 |19.95% |1.64% |- |CGI Inc |6.11% |12.82% |18.43 |20.87% | -- |- |Genpact Ltd |8.43% |7.41% |25.19 |19.11% |1.07% |- |Capgemini SE |14.59% |24.89% |21.25 |19.60% |1.39% |- |Reply SpA |16.87% |19.16% |29.18 |18.12% |0.66% |- |DXC Technology Co | -8.26% |155.46% |14.27 |10.30% | -- |- |GFT Technologies SE |27.28% |82.77% |23.97 | -- |0.90% |- |Atos SE | -3.06% | -- | -- | -14.49% | -- |- |Tata Consultancy Services Ltd |16.80% |16.23% |30.76 |37.83% |3.31% |- |Infosys Ltd |21.07% |14.98% |26.93 |32.98% |2.14% |- |Wipro Ltd |27.69% |16.49% |19.17 |16.02% |1.51% |- |HCL Technologies Ltd |12.84% |2.13% |21.35 |22.27% |4.30% |- |'''Medium''' |'''15.69%''' |'''16.49%''' |'''23.97''' |'''19.60%''' |'''1.51%''' |} {| class="wikitable" |+ !Name !Net debt/EBIT !Total debt/EBIT !Net debt/Equity !Total debt/Total assets !EBITDA/Interest expense |- ! !(x) !(x) !(%) !(%) !(x) |- |Median | -0.27 |0.77 | -10.13 |12.79% |44.42 |- |Alpha Financial Markets Consul | -- | -- | -- |1.05% |64.72 |- |Accenture PLC | -0.21 |0.27 | -11 |7.04% |258 |- |Cognizant Technology Solutions | -0.34 |0.42 | -10.13 |9.27% |411.44 |- |CGI Inc |1.17 |1.55 |41.38 |26.20% |44.42 |- |Genpact Ltd |1.86 |2.65 |70.93 |40.20% |13.04 |- |Capgemini SE | -- | -- | -- |31.80% |24.65 |- |Reply SpA | -- | -- | -- |9.08% |51.59 |- |DXC Technology Co |1.58 |2.68 |65.92 |30.63% |10.07 |- |GFT Technologies SE | -- | -- |20.93 |25.15% |42.01 |- |Atos SE | -- | -- | -- |34.80% |26.25 |- |Tata Consultancy Services Ltd | -0.86 |0.13 | -45.4 |5.52% |200.19 |- |Infosys Ltd | -0.33 |0.26 | -15.34 |4.64% | -- |- |Wipro Ltd | -1.19 |1.11 | -25.95 |16.30% |30.86 |- |HCL Technologies Ltd | -- | -- | -- |7.12% |83.33 |} {| class="wikitable" |+ !Name !Sales growth !EBITDA growth !EBITDA margin !Operating income margin !Net income growth !Net profit margin !Capex/Sales (%) !Return on invested capital !Return on assets !Return on equity |- |Median |16.08% |10.10% |18.70% |15.27% |8.06% |10.02% |1.49% |12.95% |9.85% |19.60% |- |Alpha Financial Markets Consul |65.31% |105.08% |18.82% |15.37% |28.07% |6.55% |0.43% |12.24% |5.90% |9.44% |- |Accenture PLC |16.08% |16.58% |19.56% |15.27% |17.52% |11.43% |1.17% |32.40% |15.70% |32.90% |- |Cognizant Technology Solutions |8.11% |12.48% |18.52% |15.56% |22.45% |12.11% |1.51% |17.51% |13.56% |19.95% |- |CGI Inc |6.11% |4.31% |19.94% |16.25% |8.22% |11.56% |1.21% |13.65% |9.85% |20.87% |- |Genpact Ltd |11.29% | -4.50% |15.18% |11.92% |2.10% |8.11% |1.33% |10.22% |7.34% |19.11% |- |Capgemini SE |18.61% |16.26% |14.84% |11.37% |25.84% |7.60% |1.46% |10.51% |6.52% |19.60% |- |Reply SpA |21.46% |13.39% |16.22% |13.23% |1.59% |8.61% |2.50% |14.33% |8.70% |18.12% |- |DXC Technology Co | -8.73% | -36.05% |13.41% | -1.59% | -38.91% |3.14% |1.56% | -10.30% |2.55% |10.30% |- |GFT Technologies SE | -- | -- | -- | -- | -- |6.09% |1.22% | -- | -- | -- |- |Atos SE |0.00% | -30.86% |7.47% | -0.04% | -- | -7.52% |2.51% | -17.95% | -4.74% | -14.49% |- |Tata Consultancy Services Ltd |17.32% |10.44% |26.43% |24.15% |7.90% |18.68% |1.30% |32.05% |25.89% |37.83% |- |Infosys Ltd |22.41% |10.10% |24.16% |21.34% |10.09% |16.74% |1.78% |26.95% |20.16% |32.98% |- |Wipro Ltd |18.37% | -0.27% |18.70% |15.04% | -5.44% |12.80% |2.55% |11.40% |10.34% |16.02% |- |HCL Technologies Ltd |7.99% | -1.77% |22.30% |17.99% |2.90% |14.84% |1.92% | -- |15.57% |22.27% |} {| class="wikitable" |+ !Name !Raw Beta !Adj Beta (2/3*Raw Beta+1/3*1) !Alpha !R Squared !Standard deviation of error !Relative Index |- |Median |0.95 |0.96 |0.04 |0.3 |3.02 | |- |Alpha Financial Markets Consul |1.11 |1.07 |0.47 |0.15 |4.43 |UKX Index |- |Accenture PLC |1.27 |1.18 |0.05 |0.69 |2.19 |SPX Index |- |Cognizant Technology Solutions |0.99 |0.99 | -0.21 |0.45 |2.81 |SPX Index |- |CGI Inc |0.53 |0.68 |0.03 |0.16 |2.28 |SPTSX Index |- |Genpact Ltd |0.77 |0.85 |0.15 |0.43 |2.28 |SPX Index |- |Capgemini SE |1.25 |1.17 |0.08 |0.53 |2.87 |CAC Index |- |Reply SpA |0.87 |0.91 |0.1 |0.2 |4.6 |FTSEMIB Index |- |DXC Technology Co |1.16 |1.11 |0.05 |0.23 |5.43 |SPX Index |- |GFT Technologies SE |1.31 |1.21 |1.17 |0.2 |6.12 |DAX Index |- |Atos SE |1.88 |1.59 | -1.78 |0.3 |6.93 |CAC Index |- |Tata Consultancy Services Ltd |0.83 |0.89 | -0.09 |0.33 |2.64 |SENSEX Index |- |Infosys Ltd |0.87 |0.91 |0.01 |0.33 |2.78 |SENSEX Index |- |Wipro Ltd |0.91 |0.94 | -0.22 |0.3 |3.17 |SENSEX Index |- |HCL Technologies Ltd |0.88 |0.92 |0.02 |0.27 |3.23 |SENSEX Index |} {| class="wikitable" |+ !Name !2Y Corr !Mkt Cap (USD) !BF P/E !BF EV/EBITDA !BF EV/EBIT !BF EV/Rev !LF P/BV |- |Alpha Financial Markets Consulting | |646.52M |20.6x |11.1x |12.8x |2.2x | 3.5x |- |Randstad NV |0.27 |11.84B | 14.0x |8.3x |10.8x |0.4x |2.3x |- |Coor Service Management Holdin |0.25 |635.89M |13.3x | 9.1x |15.6x |0.7x |3.1x |- |Bure Equity AB |0.25 |1.82B | -- | -- | -- | -- |1.5x |- |GFT Technologies SE | 0.24 | 1.10B |18.7x |10.9x |13.8x | 1.2x |5.3x |- |Rejlers AB |0.21 |287.34M |14.8x |8.4x |13.9x |0.9x |2.1x |- |XPS Pensions Group PLC |0.17 |414.52M |14.2x |9.7x |11.4x |2.4x |2.3x |- |Science Group PLC |0.16 |219.09M | -- | -- | -- | -- |2.5x |- |Fintel Plc |0.13 | 266.34M |16.9x |10.7x | 12.7x |3.2x |2.3x |- |RPS Group PLC |0.12 |762.27M |24.9x |11.8x |17.5x |1.2x |1.7x |- |Alan Allman Associates |0.04 |442.12M |19.5x |13.2x |15.6x | 1.4x |2.9x |- | | | | | | | | |- |Current Premium to Comps Mean | | |21% |11% | -6% |43% |32% |- |Mean Β (Including AFM LN) | |1.68B |17.0x |10.0x |13.5x |1.5x |2.7x |} ====Sensitive analysis==== The three main inputs that result in the greatest change in the expected return of the Alpha investment are, in order of importance (from highest to lowest): #The PEG multiple (the default multiple is 1.04x); # The Year-one earnings forecast (the default forecast is $ccc million); and #The Year 2 to 4 earnings growth forecast (the default forecast isccc%) The impact of a 10% change in those main inputs to the expected return of the Alpha investment is shown in the table below. {| class="wikitable sortable" |+Sirius investment expected return sensitive analysis !Main input !10% worse !Unchanged !10% better |- |The growth-adjusted EV/sales multiple |To be added |To be added |To be added |- |The Year-one sales forecast |To be added |To be added |To be added |- |The Year 2 to Year 4 sales growth forecast |To be added |To be added |To be added |}
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