January 13, 2025 16:23 GMT
CREDIT SUPPLY: Teleperformance Pre-Supply Notes
CREDIT SUPPLY
RCFFP NR/BBB
AI debate dominates what would otherwise look like a set of broadly steady fundamentals with decent rating headroom. One view is that AI will commoditise labour-intensive outsourcing into undifferentiated services while the other sees AI as enhancing efficiency and quality via AI-augmented, human-led processes. Teleperformance is front-and-centre on the list of names facing disruption though we have yet to see any material impact on fundamentals and the risk, for now, remains mostly hypothetical. Headline risk, however, remains real and is likely to drive volatility in the near term as evidenced by the AI-related selloffs in 2024 (i.e. Klarna, Salesforce).
- Teleperformance provides outsourcing services (e.g., tech support, helpdesks, debt collection, cloud integration) via LT contracts and/or performance-based pricing.
- Diversified business: EMEA&APAC/Americas 44%/41% with global specialised services specialized services 15%. No single sector accounts for >20% of revenue.
- Financials: 2019–23 revenue CAGR 12%, EBITDA margins 20–22%, FCF conversion >40% since 2020. FY24 consensus: org growth +2.75%, EBITDA margin 21%, cash conversion 44%.
- Leverage guided for <2x at FY24. Profile characterised by M&A-induced peaks (e.g. 0.8-2.6x in 2018, 1.9-2.6x in 2018, 1.5-2.2x in 2023).
- ZP Together acquisition announced in November should only see modest leverage added in FY25 (S&P see 0.1x by end of year); we liked the deal on it being margin accretive with minimal AI disruption risk.
- S&P see leverage at 1.7x by end-2025 (post-ZP Together) with FFO-to-Debt at 44% against downside thresholds of 3x and 30%. Management affirm commitment to the current rating.
- Limited comps: Bureau Veritas exposed to outsourcing but rated A-, DXC/Capgemini are tech services though overlap is limited. SES/Worldline included for shape.
- 27s/28s/29s/31s all held in CSPP with the 28s/29s inverted. 29s/31s are +9/+11 today. FV based on the secondary curve looks in the region of +185-190bps though a decent NIC seems likely.
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