This report is an updated version of the report published on 13^th April 2022 at 07:38 AM GMT+1

Business & Professional Services Sector: Complementing the Overall Economic Growth

1. UK Business & Professional Services Sector Landscape

The Business & Professional Services sector plays a crucial role in the functioning of regional economies in the United Kingdom. The sector enables the allied industries to thrive and includes services such as supporting business planning, financial management, consultancy, technology development, recruitment, and marketing, to name a few. The Government plays a key role to facilitate demand for this sector through marketing and highlighting the importance of its services. Some of the prominent companies in the space include PwC, Deloitte, EY, Wipro, and Accenture.

The sector has identified the following priority areas along with a partnership with the government with regards to future direction and contribution to the economy of the United Kingdom – responsible business practices, skills enhancement, promote growth in local regions and increase in exports. There has been an increasing trend of a rise in exports from the sector which is complemented by London’s status as the hub of international operations and expertise.

Key Trends in the Business & Professional Services Sector

Risk Exposures to Business & Professional Services Sector 

• The Onslaught of COVID Pandemic: The sector has been severely impacted by the COVID pandemic, with its clients forced to shut shop or trim down their business activities.
• Dependency on Other Industries: The performance of the sector is dependent on other industries and clients for projects and contracts.
• Macro Concerns: The present economic scenario has been quite uncertain, fueled by the invasion of Ukraine by Russia and interest rate hikes by the Fed. These are expected to put pressure on the equity markets during the current year.
• Low Barrier to Entry: The sector mainly comprises SMEs within the United Kingdom, where the barrier to entry is ideally low. Intellect, ideas, and personal contacts are given more importance than capital assets.

SWOT Analysis

Business & Professional Services Sector Outlook

The sector has produced resilient performance in the recent months with British services companies clocking stronger growth during March 2022, than estimated. This was achieved despite inflation headwinds, and the sector has witnessed business activity rise at the fastest rate in 10 months. The S&P Global/CIPS UK Services PMI grew to 62.6 in March from 60.5 in February 2022. The uptick has been driven by easing of pandemic related restrictions and increased spending on leisure and entertainment services. There has been also an increase in prices charged by services companies, and it rose to the highest level since 1996 and offset by costs paid. In a nutshell, the country’s positive business environment augurs well for the Business & Professional Services industry, supported by a strong and ethical legal system.

2. Investment analysis and stocks under discussion (DATA and CPI)

After gaining insights into the Business & Professional Services sector, we would look at the business model of two players listed on the London Stock Exchange.

A. GlobalData PLC (LON: DATA)

(Recommendation: Speculative Buy, Potential Upside: 19.35%, Market Capitalization: GBP 1.49 billion)

GlobalData PLC is an FTSE AIM 100 listed data intelligence company that assists its clients by providing faster and more informed decisions.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)   

From a technical standpoint, the stock is hovering near the lower Bollinger band with low 14-day RSI levels of 37.15.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 19.35% over the closing price of GBX 1,252.50 (as of 12 April 2022).

B. Capita PLC (LON: CPI)

(Recommendation: Speculative Buy, Potential Upside: 20.63%, Market Capitalization: GBP 352.88 million)

Capita PLC is an FTSE All-Share index listed company that is engaged in consulting, transformation, and digital services business for its clients.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock is hovering near the lower Bollinger band with low 14-day RSI levels of ~22.63.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 20.63% over the closing price of GBX 20.90 (as of 12 April 2022).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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