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Since the arrival of artificial intelligence (AI) in the economic landscape, large technology consulting companies have been waiting. Investors are still struggling to determine whether this is a boon or a threat to them. Capgemini is no exception: on the stock market, the title is limited to a symbolic gain over one year, while the index which has largely benefited from AI, the Nasdaq 100, shows a 24% increase.
“If you are afraid that generative AI is a problem for us, I think it is exactly the opposite”, hammered its president Paul Hermelin to the shareholders gathered at a general meeting last May. The leader recalled in passing that his group was all about innovations. First to use them, first to understand them in depth and first to help its customers put them to good use, he summarized.
However, a wind of suspicion has been blowing in the markets for several weeks. A piece of the cake that consulting groups like Capgemini, Accenture or Infosys usually share could escape them when AI is better anchored in business habits, believe some experts. This would explain the relative underperformance of the sector compared to the technology compartment as a whole. But not only. Fears of an economic slowdown have also played a non-negligible role, because these major players remain sensitive to fluctuations in global GDP.
A robust operating margin
While its stock market performance is a little depressing, Capgemini’s financial performance is much more encouraging. Despite the complicated pass of 2020 and a pandemic exit with variable geometry depending on the country, the growth of its activity has always been there over the past decade and its profitability has remained at solid levels: around 13% margin operational in 2021 then 2022. This is a little less than the major rivals mentioned above, but it remains at the top of the sector basket. The activity is well diversified. Both geographically, since Capgemini gives pride of place to Europe (60%) and the United States (31%), and sectorally, with strong positions in manufacturing industry, financial services, administration and consumer goods. Enough to cushion the slight slowdown that the sector fears this year, with weaker growth and shrinking margins, before an expected restart in 2024. More generally, the trajectory of the French company is healthy and the file is far from the opulent valuation of the big names in the technology sector.
A high turnover
The business model, in tune with industry standards, gives pride of place to offshore rear bases, which employ 58% of the group’s 350,000 employees. The others generally operate directly with customers. Social policy is a key element in the success of these giant advice platforms, which must fight to retain their best people. The staff attrition rate reached 20 to 25% for all players. Recent tensions in the labor market, with demand exceeding supply, have favored the turnover of engineers, welcomed with open arms by the competition. In an attempt to retain its troops, Capgemini has developed employee shareholding, which now reaches 8.5% of the capital, which makes it de facto the first force within the round table. This is an interesting dimension, which adds to the appeal of the dossier.
The current poor stock market therefore offers a good opportunity to revisit Capgemini, if we subscribe to the theory that AI will be more of an accelerator than a brake for the company. Solidly structured, with an experienced management, it is one of those high quality stocks, which generate abundant liquidity and which are thus able to remunerate their shareholders and finance their growth without damaging their balance sheet.