In this week’s video insight David Buckland introduces two companies in the Polen Capital Small and Mid Cap Fund: Endava and Globant. Endava is a British software development and consulting firm experiencing steady revenue growth and global expansion. Globant is a global IT company focusing on AI and software development. Both companies have faced recent share price declines but hold strong potential for long-term growth and digital transformation in various industries.

Transcript

David Buckland:

Hi, I’m David Buckland and welcome to this week’s video insight.

I thought I’d take this opportunity to introduce you to two companies in the Polen Capital Small and Mid Cap Fund, with very interesting growth prospects.

Endava PLC is a British software development and Business & Technology consulting company founded in 2000. It provides digital transformation consulting, traditional IT services, agile software services and various automation solutions. Its clients include the world’s leading Payments, Financial Services, Telecommunications, Media, Technology, Consumer Products, Mobility and Healthcare companies.  Endava helps fuel the rapid ongoing transformation of their businesses.

The company has 12,000 staff and its close to client offices are located across North America and Western Europe, while its nearshore delivery centres are located in Romania, Moldova, Bulgaria, Serbia, Mecadonia, Coatia, Bosnia and Herzegovina, Poland, Argentina, Uruguay, Venezuela, Mexico and Columbia. 

Recent acquisitions include the Australian-based Lexicon (October 2022), Mudbath (May 2023) and DEK (June 2023) and these also come with substantial foreign operations. Revenue has been growing at an average annual 27 per cent over several years and is expected to hit GBP815 million (US$1,035 million) in the year to June 2023. However, analysts have downgraded their forecast revenue growth to only 7 per cent for Fiscal 2024.

Over the past 5 years, the Endava share price jumped from US$25 to peak at US$168 in late-2021, before retreating, on slowing growth expectations and rising interest rates, to the current US$50, and a market capitalisation of US$2.8 billion. 

Founded in Buenos Aires in 2003 and listing in 2014, Globant is a global IT and software development company with a US$7.5 billion market capitalisation and 28,000 staff operating across 100 delivery centres, with the majority based in Latin America. They serve a range of global businesses, with close to 85 per cent of of revenue being generated in the Americas, with Europe and Asia smaller but growing markets..

The Company is committed to AI, Big Data and Cloud Computing to create innovative software products.  AI was introduced to selected clients five years ago. Forecast 2023 revenue, which has grown at an annualised 30 per cent since 2010, is expected to hit US$2.07 billion (+16 per cent). The Company has made around a dozen acquisitions over several years, however around 90 per cent of Globant’s growth has been organic. Forecast operating profit margins are 15 to 17 per cent.

Also peaking in late-2021 at $342, Globant’s share price has halved to the current US$176, with higher interest rates and lower growth expectations taking their toll. 

While both Endava and Globant have recorded severe share price declines in the past 18 months amidst a more cautious operating environment, longer-term they should play a critical role in facilitating digital transformation for clients across a variety of industries and end-markets. Operationally they are well positioned to enjoy “Accenture” type growth over the medium to longer term.

That’s all I have time for.  Please continue to follow us on Facebook and Twitter.

The Polen Capital Global Small and Mid Cap Fund own shares in Endava and Globant. This video was prepared 12 July 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.