(BFM Bourse) – The bank lowered its recommendation on the outsourced customer experience group from “buy” to “neutral”. She estimates that the group’s medium-term growth will be divided by almost two due in particular to the impact of artificial intelligence on prices, even if she recognizes that the group has arguments to make in this area.
Teleperformance is experiencing a complicated stock market year in 2023, to say the least. The outsourced customer experience specialist has seen a drop of 48% since January 1, the steepest in the CAC 40.
The group has disappointed in its growth on several occasions and lowered its annual revenue growth target in July. He also announced an important acquisition (Luxembourg’s Majorel) which was poorly received by the market. Overlaid on this cocktail were fears about the impact of generative artificial intelligence (AI), the one at the heart of ChatGPT, on the company’s business model.
The company assures that this technological phenomenon will be positive for it, in particular through an improvement in its productivity. The company also has its own “PET genAI” tool.
But this Wednesday, UBS is more fueling concerns on this point than erasing them. The Swiss bank lowered its recommendation from “buy” to “neutral” on the value and reduced its price target to 130 euros from 380 euros previously.
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Deflation in the sector
This weighs on the Teleperformance share which lost 3% on Wednesday, to 114.2 euros, in a slightly falling market, the CAC 40 losing 0.03%. This is the most pronounced decline in the Paris index.
For the Swiss bank, the company has “a long battle” to fight “to reconvince”. “The current headwinds on growth and the debates on long-term disruptions are unlikely to dissipate quickly,” underlines the Swiss bank.
The establishment notes that the group is currently facing pressure on volumes in certain end markets (“verticals”, in the jargon), such as internet services and telecoms, as well as pressure on prices because customers are turning to less expensive off-shore services.
In the longer term, UBS asked itself the question of the potential repercussions that generative AI could cause. “Given the high labor intensity and degree of task repetitiveness in the CX (customer experience) industry, investors are clearly concerned that generative AI will completely disrupt existing businesses,” notes the bank.
“The technology is still in its infancy.”
“While we have yet to see contracts indicating a price collapse or new entrants, the technology is in its early stages and it may be years before the full implications are apparent” , she judges. Uncertainty over the evolution of the action is therefore likely to persist.
UBS estimates that generative AI tools are expected to accelerate price deflation in the sector by enabling lower-cost solutions, resulting in a price decline of 6% per year over the period 2022-2027, up from 4% between 2010 and 2020, according to its estimates.
However, Teleperformance being a major leader in a fragmented sector, the company should be able to implement these new generative AI tools to improve its productivity and enrich its service offering, she anticipates.
Consequently, it expects medium-term like-for-like growth of 4.5% per year, compared to 9% over the last ten years. This led it to lower its average organic growth forecast to 4% over the period 2022-2027, compared to 7.5% in its previous valuation model, as well as its estimate of profit margin before taxes, expenses. interest and amortization (Ebita) in 2027, which increases from 16.5% to 15.7%.
The bank therefore believes that the group can maintain margins of around 15%. “But given increasing technology investment, this will be a difficult balance to strike, as it will require productivity growth and new services to offset deflation, and a lower average cost per FTE” , she warns.
Julien Marion – ©2023 BFM Bourse
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