On Thursday, HSBC (LON:HSBA) maintained a Buy rating on shares of Teleperformance (TEP:FP) (OTC: TLPFY), with a consistent price target of €220.00. The firm addressed the company's recent share price decline, noting that it has fallen 13% year-to-date, which contrasts with the CAC 40 index's 5% gain.
The current valuation of Teleperformance mirrors historical lows not seen since 2012 and as recently as October 2023, with a 2024 estimated EV/EBITDA of 5x, a PE ratio of 7x, and a free cash flow (FCF) yield of 13%.
HSBC highlighted the challenges Teleperformance faces in addressing concerns related to artificial intelligence (AI) and restoring confidence in its business model. Still, the firm believes that the market is overestimating the associated risks and underappreciating the potential opportunities.
The valuation, according to HSBC, does not accurately reflect the company’s strong fundamentals and promising long-term prospects.
The analyst anticipates that while visibility for the company's performance might be limited at the start of 2024, the concerns should diminish as revenue growth picks up and profit margins increase.
HSBC projects an average free cash flow of approximately €1 billion per annum from 2024 to 2027, which could lead to rapid debt reduction and the potential for increased share buybacks and self-funded acquisitions in specialized services.
HSBC's estimates for Teleperformance remain unchanged, supporting their discounted cash flow (DCF)-based target price of €220. The firm also mentioned that their weighted average cost of capital (WACC) of 10% already accounts for the volatility in the share price due to AI-related concerns.
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