Deal Win for Accenture – Analyst Blog

Technology, outsourcing and consulting major Accenture Inc. (ACN) recently signed an application development management agreement with National Australia Group Europe (“NAGE”), a subsidiary of National Australian Bank. With the signing of this deal, the bank has extended its existing contract with Accenture for an additional three-year period extending up to 2015.

 

As per the terms of this extended agreement, Accenture will continue to provide application development and management services for a number of the bank’s key enterprise and customer applications. The initial agreement was signed by the two companies in 2007, to achieve more flexible and efficient IT services.

 

Post recession, Accenture has seen several contract extensions and contract renewals. It recently won a four-year $73.0 million contract from the U.S. Defense Logistics Agency (“DLA”). As per this contract, the company will restructure DLA’s energy supply chain into the enterprise business system.

 

The company also secured a contract extension worth $160.0 million for 7 years from Educational Testing Service (“ETS”), which is an organization involved in education assessment and psychometric research. This contract extension empowers Accenture to manage the supply chain process of the company.

 

As per the terms of the ETS agreement, Accenture will continue to manage all aspects of the supply chain, including printing, publishing, warehousing, distribution and shipping of test material to 160 countries. The company is winning deals, but the rate of these wins has shrunk over a period of time.

 

This apart, the company is also trying to grab a larger share of the Indian market, which offers high growth prospects. However, other rivals such as Capgemini are also looking for a bite. Capgemini expects to grow revenues in the 3% to 5% range for the second half of 2010, as per its latest management guidance. Other firms are also trying to grab a share of the Indian pie.

 

Some industry veterans believe that the recovery in discretionary IT project work will take some time to shape up, but the IT heads of different organizations across a broad range of verticals feel a need to ramp projects that were stagnated in 2009, as regulatory changes in financial services and healthcare had a negative impact on these projects. Following the recession, the project flow at Accenture has increased and is expected to strengthen in 2011, thereby improving the business potential of the company.

 

We remain cautiously optimistic on Accenture, despite its poor top-line growth in the recent past. We think that the stable pricing environment is encouraging, particularly because of the stiff competition it faces. Further, although management expects revenue growth of 5% to 9% in the upcoming quarter, we believe this could be overly optimistic.

 

Accenture currently has a short-term hold rating, equating to a Zacks #3 Rank.