Investors snub Teleperformance's strategy

The global leader in customer relations generated free cash flow exceeding EUR1bn last year. Its market capitalization is just four times that profit, and its enterprise value-market capitalization plus net debt-is nine times that profit.

In a downturn marked by major stress for the sector following the arrival of new artificial intelligence technologies, the group is on the offensive rather than the defensive.

Over the past 18 months, Teleperformance has committed nearly €3.5bn to its external growth strategy, with the acquisition of its compatriot Majorel being the largest deal.

This morning, the harsh market reaction—with the share price falling 16% as the market opened—was likely due to the lack of convincing results. In the first six months of the year, revenue grew by just 0.8%.

As for organic growth in the specialized services segment, which accounts for one-sixth of revenue and is supposed to have higher margins than Teleperformance's traditional activities, it is in the red: down 7% from one half to the next and down 11.6% from one quarter to the next.

Operating cash flow for the half-year was lower than in the same period last year, while debt continued to increase, both to finance acquisitions and dividend increases; share buybacks, meanwhile, have almost entirely ceased.

This combination is deeply unpopular with the market, which remains skeptical about the group's ability to seize the opportunity and turn the artificial intelligence wave into an opportunity for its businesses.

In this context, it is hardly surprising that investors are questioning the value creation of recent acquisitions, which are currently perceived as a headlong rush rather than anything else. It should also be noted that these fears are nothing new, and that Teleperformance has aroused similar mistrust several times in the past.

The French group is also performing with solvency ratios that are broadly in line with their historical averages. Its closest rival, the US company Concentrix, which is facing similar headwinds, is walking along a tighter tightrope.

Amongst the top five shareholders, the two largest, Fidelity and BlackRock, have increased their stakes in recent weeks, while the third largest, Norges Bank, has reduced its stake. Finally, the fourth and fifth largest shareholders, Bertelsmann and Groupe Saham, have not changed their holdings.