Teleperformance-TEP.PA
French Mid Cap Play
Disclaimer: This newsletter is not financial advice; it is for educational purposes only. Please DO NOT take this newsletter as a buy or sell signal.
Teleperformance Fundamentals:
Below is a checklist I normally use when analysing a company’s fundamental health. If the company meets my criteria, it will be colour-coded in green, and if it fails to meet my criteria, it will be colour-coded in red, which means I need to investigate further and ask myself why this is the case.
As you can see below, there are four red boxes, and I am going to explain each one:
5-Year Average Return On Invested Capital- Return on invested capital (ROIC) reflects how effectively management allocates cash for future growth. When evaluating a company, I prefer an ROIC of over 10%. However, Teleperformance currently has a 5-year average ROIC of 9%. The call centre sector generally exhibits lower ROIC due to high operating costs, intense competition, and pricing pressures.
5-Year Average Profit Margin- When analysing a company, I look for a 5-year average profit margin of over 10%. However, given that this company operates in an industry with typically low margins, I will not penalise them for this, as the sector usually has low profit margins due to several factors like high labour costs and a competitive market.
Shares Outstanding- When analysing a company, I prefer the number of shares outstanding to remain stable or decrease over time. In the case of Teleperformance, their shares outstanding have increased by 0.68% over the last five years. This level of dilution is minimal, and I am not particularly concerned about it.
Current Debt-To-Equity Ratio Below 1.0- Teleperformance has a debt-to-equity ratio of 1.28, which exceeds my 1.0 threshold. The reason Teleperformance has a leveraged balance sheet is that new debt was incurred to finance the Majorel acquisition and shareholder payments throughout the year, including dividends (€227 million) and share buybacks (€366 million). I am not overly concerned about Teleperformance's debt level, as the company generates significant cash, and most of its debt (72%) is fixed at an average rate of 3.2%.
Business Overview:
Founded in 1978 by Daniel Julien, Teleperformance is a French company specialising in business process outsourcing with its headquarters in France. Over the decades, Teleperformance has evolved into a leading provider in the industry, known for its comprehensive suite of services that cater to diverse business needs. The company offers customer support, technical assistance, and a variety of back-office operations, all designed to enhance operational efficiency and drive customer satisfaction. Teleperformance operates globally and has a presence in numerous countries, allowing it to serve clients across various sectors, including telecommunications, finance, healthcare, and retail. The firm is recognised for its commitment to employing advanced technology and innovative solutions to meet the ever-changing demands of the marketplace. The team includes proficient specialists who manage customer interactions with attention and skill, guaranteeing that clients experience reliable, top-notch service. The company places a strong emphasis on creating a positive customer experience, recognising that this is vital for client retention and business growth. By continuously adapting to industry trends and embracing digital transformation, Teleperformance remains at the forefront of the BPO industry, helping businesses improve their service delivery and achieve their operational objectives efficiently.
Business Segments:
Digital CX And Ai- Teleperformance has become a frontrunner in combining digital customer experience (CX) with artificial intelligence (AI). Their approach enhances customer engagement by offering omnichannel support, enabling clients to connect seamlessly across various platforms. AI-powered chatbots are integral to this system, managing routine questions 24/7, which reduces wait times and allows human agents to focus on more intricate issues. Furthermore, Teleperformance uses predictive analytics to proactively foresee customer needs, address potential problems, and build trust. Personalisation is vital; by examining customer data, Teleperformance customises interactions to match individual preferences, ensuring customers feel appreciated.
Cx Management- Teleperformance has established itself as a leading global provider of customer experience management services, operating in over 80 countries. Central to its strategy is a commitment to exceptional service, leveraging advanced technology and skilled personnel. A key principle of Teleperformance’s model is its focus on omnichannel support. By allowing connections via phone, live chat, email, and social media, the company ensures a seamless experience where customers can switch channels while retaining context. Teleperformance uses data analytics to personalise interactions, enhancing customer satisfaction and loyalty. Technological innovation is vital to its operations, with investments in artificial intelligence and machine learning that improve service outcomes and equip agents with necessary insights. Workforce management is also crucial; the company employs advanced scheduling tools and training programmes to ensure a knowledgeable and prepared workforce. Continuous improvement is ingrained in Teleperformance's culture, with regular feedback and performance assessments driving process enhancements.
In conclusion, Teleperformance stands out in customer experience management by integrating advanced technology, skilled personnel, and a focus on personalisation. This approach meets business demands and enhances the customer experience, making Teleperformance a trusted partner for brands seeking to excel in engagement.
Consulting, Analytics And Technology- Teleperformance’s Consulting, Analytics, and Technology segment is a sophisticated integration of services designed to enhance business operations and customer engagement. In consulting, Teleperformance partners with organisations to diagnose challenges in their customer service frameworks and operational processes. This partnership involves a thorough evaluation of existing practices, identifying gaps, and recommending tailored solutions that drive efficiency and improve outcomes. Analytics plays a critical role in this segment, as Teleperformance collects and analyses a wealth of data from customer interactions. By employing advanced analytics, they translate this data into meaningful insights that help businesses understand customer behaviour, preferences, and trends. These insights inform strategic decisions, enabling companies to tailor their services more effectively and anticipate customer needs.
The Consulting, Analytics, and Technology division of Teleperformance focuses on establishing a comprehensive environment that combines data-driven insights with advanced tools to enhance customer experiences and stimulate business growth. This cohesive strategy enables clients to effectively manage the challenges of today’s market while prioritising customer satisfaction.
Specialised service- Teleperformance's specialised service segment is a vital part of its operations, focusing on delivering tailored solutions to meet the unique needs of various industries. This segment stands out due to its commitment to understanding the specific challenges faced by clients, whether in sectors like healthcare, finance, technology, or retail. By combining advanced technology with human expertise, Teleperformance is able to provide a high level of service that enhances customer experiences and drives satisfaction.
Overall, this segment embodies Teleperformance's dedication to delivering excellence through innovation and specialisation. It ultimately fosters stronger client relationships and contributes to sustained growth in diverse markets.
Majorel- Acquired by Teleperformance in 2023. This acquisition strengthens Teleperformance's capabilities in digital customer experience (CX), consulting, analytics, and technology services, particularly in specialised services. This move reflects the ongoing consolidation trend in the customer experience management industry, aiming to enhance service offerings and improve efficiency.
Majorel is a global leader in customer experience (CX) management. The company focuses on enhancing the digital customer journey, leveraging artificial intelligence (AI) to create tailored experiences that meet the evolving needs of clients and their customers. Majorel offers a range of specialised services designed to optimise customer interactions across various channels. Their expertise includes insights derived from data analytics, which enable businesses to better understand customer behaviour and preferences. This in-depth understanding allows Majorel to craft strategies that improve customer engagement, boost satisfaction, and ultimately drive business growth. With a commitment to excellence, Majorel continuously invests in technology and talent to deliver high-quality service. Their teams are dedicated to empowering companies to navigate the complexities of the digital landscape, ensuring they can meet and exceed customer expectations in an increasingly competitive market. Overall, Majorel stands out for its ability to combine advanced technologies with a deep understanding of customer needs, making it a trusted partner for organisations aiming to enhance their customer experience globally.
Management:
When evaluating management, I judge the CEO based on several factors, such as experience, capital allocation skills, and Incentives. In this section, I will discuss whether management incentives are aligned with shareholders.
Experience-Â Daniel Julien has been with Teleperformance since 1997, and through his leadership, he has played a critical role in transforming the company into one of the largest and most successful firms in its sector. He has overseen substantial growth, including strategic acquisitions that have expanded Teleperformance's global presence and service capabilities. Throughout his time at Teleperformance, Daniel Julien has held various roles, including Operations Manager, Regional Director, and Chief Operating Officer, each contributing to his comprehensive understanding of the company's operations and strategy. Before joining Teleperformance, Daniel Julien held various managerial positions in different industries, where he gained valuable experience in operations and executive leadership. His background includes expertise in managing large teams, optimising processes, and developing strategies to enhance customer satisfaction. Under Daniel Julien's guidance, Teleperformance has embraced digital transformation, integrating advanced technologies and analytics to improve the customer experience. He is recognised for his commitment to innovation and for fostering a culture that prioritises employee well-being and professional development.
Below is an image illustrating the current experience of Teleperformance board members:
Capital Allocation- Capital allocation is very important when judging management because I want them to create value for shareholders, not destroy it. So far, Teleperformance has done a great job with capital allocation. They are providing value back to shareholders by reinvesting in the business to improve customer experience, share buybacks and paying a dividend.
Teleperformance currently pays a dividend with a yield of 4.0%. This dividend is sustainable because it only covers 17% of the company’s free cash flow.
Incentive- This is important because if the current board is buying shares of their own business, it indicates that management believes the stock is undervalued and is confident in the company’s long-term prospects.
As you can see below, we have zero buy orders and zero sell orders.
Bull And Bear Case:
Bull Case
Bull Case- The first bull case is the company's adaptability to change. Teleperformance has shown remarkable adaptability in response to global shifts, including the rise of remote work and the ongoing digital evolution. This ability to pivot quickly will be paramount as consumer expectations evolve, ensuring that Teleperformance remains relevant and competitive.
Bull Case- The second bull case is Investment in technology. Teleperformance has consistently invested in state-of-the-art technology, including artificial intelligence and automation tools. By continuing to enhance its technological capabilities, the company can offer more efficient, cost-effective, and reliable services. This could lead to improved margins and higher customer satisfaction, attracting more clients from diverse industries.
Bull Case- The third bull case is global footprint and diversification. With operations in over 80 countries, Teleperformance has a vast and diversified presence that mitigates risks associated with economic downturns in specific regions. Its ability to serve clients in different languages and cultures makes it a preferred partner for multinational corporations looking for consistent service delivery worldwide.
Bear Case
Bear Case- The first bear case is intense market competition. The customer experience management market is highly competitive, with numerous players vying for market share. Increased competition could lead to price wars and reduced profit margins for Teleperformance, making it challenging to maintain its current growth trajectory.
Bear Case- The second bear case is technological disruptions. Rapid advancements in technology could render certain services obsolete. If Teleperformance fails to keep pace with innovation, it risks losing clients to competitors who offer more advanced or efficient solutions.
Valuation:
In this section, I will discuss valuation. Using some basic metrics, I will compare Teleperformance to its industry rivals and determine whether the company is cheap relative to its peers. Then, I will value Teleperformance using a discounted cash flow model to determine a price I am willing to pay based on its expected growth rate and my desired return of 15%.
As shown below, when compared to its peers, Teleperformance scores 2/5, while Concentrix scores 3/5. Even though Concentrix beats Teleperformance statistically, both companies are high quality and offer different services, so it ultimately comes down to personal preference:
Service Offering -Â Teleperformance is best known for its customer care, technical support, and management of social media. Additionally, it provides solutions in analytics, consulting, and workforce optimisation. In contrast, Concentrix offers a wider variety of services, such as customer service, IT service management, back-office support, and tailored industry solutions. They place a strong focus on digital transformation and automation.
Industry Focus- Teleperformance works with a variety of industries, including telecommunications, technology, healthcare, and financial services, whereas Concentrix has a diverse focus but is particularly strong in industries such as technology, automotive, banking, and healthcare.
Global Precence- Teleperformance has a more extensive global footprint and a larger workforce compared to Concentrix. While also global, Concentrix is relatively smaller in scale than Teleperformance but is considered highly competitive in specific markets.
In summary, while Teleperformance and Concentrix offer significant BPO services, their service offerings, industry focus, global reach, and corporate cultures differ. The two choices often depend on specific business needs and the desired customer experience.
As you can see, based on my conservative assumption, Teleperformance is looking to grow 2-4% over the long run, so I assumed a 4% growth in the first 1-3 years, then the growth will slow down to 1% 4-6 years out. In my assumption, I also went with an exit multiple of 8x earnings, which is below the historical average at which Teleperformance has traded. Based on my assumption, I have come to a buy price of $191.93 compared to the current stock price of $102.50, which means right now, Teleperformance is trading below intrinsic value.
Thanks for reading my newsletter on Teleperformance. Disclaimer: This newsletter is not financial advice. This is for educational purposes only, so please DO NOT take this as a buy or sell signal.
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Why did you calculate with 4%? When a company calculates with X%, you always calculated with smaller numbers. What would be the outcome, if you calculate with 2% for the first years and 1% the next 4 years?
It is a tough one. We will find out more when they will report earnings.