Company Overview: Concentrix Corporation (NASDAQ: CNXC) is a global provider of customer experience (CX) solutions blended with technology. Clients can benefit from the company's end-to-end services, including CX process optimization, technological innovation, front- and back-office automation, analytics, and business transformation. It provides integrated solutions that support the customer lifecycle, including customer experience (CX) and user experience (UX) strategy and design and analytics and actionable insights. Customer care, sales support, digital marketing, technical assistance, digital self-service, content moderation, creative design and content development, and back-office services are among its Customer Lifecycle Management solutions. The company's CX/UX Strategy and Design services include CX strategy, data-driven user design, journey mapping, and multi-platform engineering. Robotic Process Automation (RPA) and cognitive automation are among the services offered by its Digital Transformation solutions.

CNXC Details

Key Takeaways from Q1FY22 (ended February 28, 2022)

• Growth in Revenue: In Q1FY22, the company's total revenue amounted to USD 1.54 billion, representing a 13.51% increase year-over-year from USD 1.35 million in Q1FY21, driven by the acquisition of PK on December 27, 2021, and favourable volumes across all sectors.
• Growth in Net Margin: CNXC reported a net profit of USD 110.27 million for Q2FY22, representing an improvement in net margin to 7.2% in Q2FY22 vs. 6.6% for Q1FY21, representing a diluted EPS of USD 2.09 in Q1FY22.
• Quarterly Dividend: On February 08, 2022, the company declared a quarterly dividend of USD 0.25 per common share, payable on May 10, 2021, to shareholders of record on April 29, 2022.

Revenues & Operating Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

• Acquisition of PK: On December 27, 2021, CNXC completed the acquisition of PK and initiated the integration process. This marks the Concentrix's first acquisition since becoming a publicly traded business. With over 5,000 employees spread over 20 cities in four countries, PK is a leading worldwide CX digital design and engineering organisation. PK has received international recognition and awards for creating and engineering large-scale digital experiences. CNXC's strategy of investing in digital transformation to deliver exceptional customer experiences will be bolstered by the acquisition, which will allow the company to scale digital capabilities faster while establishing excellence in key high-growth areas such as CX Design & Development, AI, Intelligent Automation, and Customer Loyalty.

Balance Sheet & Liquidity Position

• Decreased Cash Balance: The company exited Q1FY22 with total cash and cash equivalents of USD 142.16 million, relatively lower than USD 182.04 million at the end of FY21.
• Cashflow from Operations: Operating cash inflow during Q1FY22 increased to USD 45.02 million from USD 35.88 million in the prior corresponding period.
• Increase in Debt: CNXC debt has increased to USD 2.35 billion from USD 802 million at the end of FY21.

Key Metrics: In Q1FY22, CNXC's operating and net margins were 9.6% and 7.2%, compared to the industry median of 10.0% and 6.6%, respectively. ROE stood at 4.1%, 290 bps more than the industry median.

Profitability Metrics; Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 65.46% of the total shareholding, while the top 4 constitute the maximum holding. Mitac International Corp and Fidelity Management & Research Company LLC hold the maximum stake in the company at 16.63% and 10.81%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

• Customer Concentration Risk: CNXC's top 5 customers accounted for 27% of its total revenue in FY20. The loss of any of these key customers could hurt the company's financial operations.
• Foreign Exchange Translation Risk: CNXC conducts its business in many currencies other than USD, which makes it vulnerable to exchange rate fluctuations. Though it has taken currency forward contracts to mitigate the fluctuation in prices, still this risk persists. Therefore, any unfavourable movement in the exchange rates would have an unfavourable impact on the company's financials.

Outlook

• Looking forward, CNXC expects to generate revenue of USD 1.57 – 1.60 billion in Q2FY22, along with operating income to the tune of USD 146 – 161 million and USD 205 – 220 million on GAAP and non-GAAP basis respectively.
• In FY21, CNXC expects its revenue to range between USD 6.45 – 6.60 billion. It also expects its GAAP operating income to range between USD 660 – 700 million, along with a non-GAAP operating income of USD 890 – 930 million.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

 Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the past one month, CNXC's share price has corrected 19.32%. The stock is currently leaning towards the lower end of its 52-week range of USD 141.38 to USD 208.48. We have valued the stock using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price with an upside of mid-twenties (in percentage terms). We believe that the company is trading at premium with its peer's average, considering its recent acquisition and solid volumes. We have taken peers like Western Union Co (NYSE: WU) and StarTek, Inc. (NYSE: SRT). Considering the decent topline performance, growth in net margin, positive outlook, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing market price of USD 157.65, up 4.47% as of April 25, 2022.

CNXC Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Note 3: The report publishing date is as per the Pacific Time Zone.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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