This Parisian firm should be on the radar of UK investors

International investing expert Rodney Hobson explains why its time to take notice of this top company.

Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.

For a company that is below the radar of most non-French investors, Teleperformance (EURONEXT:TEP) is having a remarkably successful run. It has just been promoted to the CAC 40, the main index covering the largest companies quote on the Paris bourse. Time to sit up and take notice.

Teleperformance specialises in managing customer relations for other companies, operating call centres, running programmes to attract new customers, telemarketing, offering technical support, collecting debts, researching markets and developing customer relationship software. In a post covid-19 world these services could well be in great demand and there is plenty of scope for cross-selling services.

Even during the crisis it has benefited from supporting governments, healthcare bodies and private sector companies in 80 countries. It has proved particularly adept at rearranging its own and other people’s businesses to cope with the logistical challenge of working from home while maintaining security and client confidentiality. Personal data has had to be handled sympathetically and sensitively.

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Teleperformance is based in Paris and was founded in 1978 by Daniel Julien, who is the chairman and chief executive. His driving force is a big asset, although investors should be alert to the dangers when any company is heavily dependent on one person. The market capitalisation has topped €12 billion, ten times the level of a decade ago, with shares largely in the hands of institutional investors around the world.

The group has seen rapid growth, with revenue tripling in the past 10 years, and a continuous improvement in its business portfolio, partly through organic growth and partly by spotting acquisition targets that will add value. It now employs more than 330,000 people speaking between them 265 different languages. 

Source: TradingView. Past performance is not a guide to future performance.

Teleperformance has a particularly strong record of generating double-digit returns on capital employed, which is essential in any company with a policy of continuous acquisitions.

About 25,000 extra jobs were created last year and the global management team was beefed up with the appointment of a president of transformation, a joint chief operating officer and a president of global business development.

Other initiatives included the development of digital integrated solutions in all geographic regions, the global launch of an enhanced cybersecurity programme called the Eagle Project and the launch of an innovation centre in the heart of the Silicon Valley in California.

Results leading up to the Covid-19 outbreak were strong. Revenue in 2019 was up 20.6% to nearly €5.4 billion with like-for-like growth at an impressive 10.6%, beating estimates earlier in the year that projected organic growth of 8.5%. Net profit leapt 28.3% to €400 million as margins improved, allowing the board to raise the dividend by 26.3% to €2.40.

These excellent results allowed Teleperformance to restate its target to grow like-for-like revenue by at least 7% this year alongside a further improvement in margins.

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The lockdowns in various countries will make that harder to achieve, but such is the momentum behind this company that it is highly likely to continue to thrive this year even though it is up against particularly strong comparatives in the third quarter.

The target for 2022 is to take revenue to €7 billion – though that includes intended acquisitions in high-value services. Organic growth should continue to top 7% a year.

The shares peaked at €244 in mid-February and bottomed at €155 just over a month later. They have now recovered to around €226, where the yield is 1.06%, but seem to have hit a temporary hiatus and, like the markets generally, move erratically. They should be on an upward track again soon.

Hobson’s Choice: The recent high is €229. Buy up to that level.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.