iEnergizer Limited (LON: IBPO)

iEnergizer Limited is an FTSE AIM 100 Index listed company engaged in providing Business Process Outsourcing solutions. The Company provides solutions to Healthcare, BFSI, Gaming, Publishing and Legal industries.  The Company builds and operates customized customer care contact, back-office and high-volume transaction processing centres serving the entire customer lifecycle from the first contact to post-sales.

Recent trend of dividend payments

  (Data Source: Refinitiv, Research done by Kalkine Group)

The board of the Company remains confident about the growth, and follows a progressive dividend policy and pays dividends twice a year. Accordingly, the Company declared a final dividend of GBX 8.40 per share for FY21, paid on 30 July 2021 (Ex-divided date 1 July 2021). In FY21, the Company paid a total dividend of GBX 14.12 per share (excluding special dividend), a ~4% increase compared to FY20.

Growth Prospects

• Attractive project pipeline: The Company sees a strong project pipeline going into FY22 in both segments. IBPO continues to develop the course material and Learning Management Systems (LMS) for the Off-The-Shelf (OTS) content service. The operational leverage in the business model enables the Company to capitalize substantially on revenue growth opportunities presented in the pipeline.
• Strong customer retention: IBPO remains committed to providing high-quality services and has a retention rate of 90%. This helped the Company as the volume of new work generated from existing clients increased. IBPO also continues to increase the sale of additional complex services and at a higher margin. IBPO’s direct customers include several of the world’s largest publishers, Fortune 500 corporations and professional service providers.
• Strong momentum in the industry: The Company saw an increased demand in the healthcare and pharmaceutical sector. The management successfully aligned the company operations with emerging market opportunities to provide digital technology and solutions. In FY21, the Company catered to the increased volumes processed for key customers, without additional workforce requirement, reflective of the Company's capability to transfer expertise from one discipline to another and to utilize technology solutions.

Financial dominance presented through the charts:

Key Risks

• Longevity risk: The Company's business model is required to provide benefits for life for the members of the defined benefit liability. An increase in the life expectancy of the members will increase the defined benefit liability for the Company.
• Interest rate risk: The borrowings of the Company are subject to the floating interest rate. As per Company, a 1% increase in the interest rate would amount to approximately USD 1,621,170 more borrowing, thus, putting additional pressure on the bottom line.
• Foreign rate fluctuation risk: The Group renders services primarily to customers located in the United States. Any volatile fluctuations in the US dollar could impact the financials of the Company.

 

Now we will analyze some key fundamental and shareholders statistics of iEnergizer Limited. 

Financial and Operational Highlights (for the 12 months ended 31 March 2021 as of 24 June 2021)

(Source: LSE Website)

• The Company reported decent results for FY21, with total revenue growth of 2.80% at USD 200.3 million, on the back of improved revenue share from the key clients despite pandemic.
• In the BPO segment, revenue grew by 2.6% in FY21 while maintaining 63.3% of revenue share, as customers increased workload volume and new clients were added.
• The EBITDA margins in the BPO segment improved to 34.9% in FY21 from 33.1% in FY20, on account of increased volumes from high margin international media and entertainment verticals, offsetting the negative impact on smaller verticals.
• The content Services segment grew its revenue 2.6% in FY21, on account of several new clients, primarily in its E-Learning and Digital training divisions.
• The EBITDA margins improved above 27% owing to higher efficiencies achieved in operations.
• The Company continues to focus on cost-saving initiatives and invested in technology for reducing throughput time of different processes leading to productivity gains resulting in higher margins.

Financial Ratios (H2 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 27 August 2021, at 8:20 AM GMT, IBPO’s shares were trading at GBX 304.00, down by 0.98% against the previous day closing price. Stock 52-week High and Low were GBX 366.80 and GBX 194.58, respectively.

On a daily chart, the stock price is sustaining above the 50-day SMA at about GBX 285.00 and 100-day SMA at about GBX 295.00. Hence, there could be an uptick in the stock price in the near term. Also, the stock recently broke above a downward sloping trendline as highlighted on the chart above, indicating potential upside momentum in the near term.

In the last five years, IBPO’s stock has delivered an excellent positive return of ~473.47%. Also, it has outperformed the FTSE All-share industrial support services index with a return of around ~63.61% during the period and the FTSE AIM 100 Index with a return of around 69.32%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

IBPO delivered a resilient performance in FY21, driven by customer addition and growth in workload volume despite the Covid-19 pandemic. The Company remains optimistic about the growth in FY22, driven by an additional service pipeline and a high retention rate. Furthermore, IBPO continues to pay high dividend to its shareholders despite high investment in technology and project pipeline. The Company anticipates strong momentum in the healthcare sector and has developed high margin services to cater to the high demand. IBPO maintains a solid financial position with a current ratio higher than the industry median of 1.32x, and it also improved its ROE in H2 FY21. Overall, IBPO continues to focus on high margin products while maintaining a healthy dividend payout to its shareholders. 

Considering the decent return on equity, robust balance sheet, progressive dividend policy, attractive product pipeline, strong customer growth and increased volume from the existing customer along with support from the valuation as done using the above method, we have given a "Speculative Buy" recommendation on iEnergizer Limited at the current price of GBX 304.00 (as on 27 August 2021 at 08:20 AM GMT), with lower- double-digit upside potential based on 19.21x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. Resistance level 2 is just above the 52-week high, and if IBPO attains momentum or breach it, then target price as per the valuation table could be seen in the near term as per technical chart analysis.

*All forecasted figures and peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

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