<%@ LANGUAGE=VBScript %> <% Set asplObj=Server.CreateObject("ASPL.Login") asplObj.Protect Set asplObj=Nothing %> Excerpts from analysis of Accenture's 4Q07 business results (Sep 27, 2007)

Annex Bulletin 2007-33                             September 27, 2007

Excerpts from CONFIDENTIAL CLIENT edition (Annex clients click here)


AAP-ed by IBM! (Analysis: Mainframe demand benefiting from specialty engines, Java)

Profitable Growth Continues - Analysis of HP's 3Q business results  [Annex clients click here]


Updated 11/25/07, 7:30PM MST, adds Institutional Owners...

Analysis of Accenture's Fourth Quarter Fiscal 2007 Results

Strong Finish to Great Year

Revenues, Profits Both Up in Double Digits, Yet Stock Performance Lagging Behind Stellar Business Results

But Stock Surging "the Morning After"

SCOTTSDALE, Sep 27 - Accenture did it again.  Its fourth quarter revenue and profit results blew the Wall Street forecasts right out of the water.  The full fiscal year EPS was up 24%, adjusted for one-time tax gain last year, while full year revenues jumped 18% to $19.7 billion.  (Accenture’s fiscal year ends Aug 31).  Fourth quarter revenues rose 29% to $5.11 billion (up 23% in constant currency), a new record for the period.

Free cash flow was $2.27 billion, well above the company's previous outlook of $1.9 billion to $2.1 billion. Accenture also increased its cash dividend by 20% to $0.42 per share, and repurchased $2.3 billion of its stock during the fiscal year.


Wall Street's Jaded View

In short, Accenture excelled both on Main Street and on Wall Street in the last 12 months, capping a great year with a strong fourth quarter.  And it has been exceeding expectations now for almost three years.  What more could you ask of any company, right? 

Indeed, every time you listen to its quarterly calls, the company collects a ton of compliments and congratulatory comments from otherwise reserved financial analysts (also see "Burning the Track," June 2007, for another example of it).  And then they go back to the office and...?


Business Segment Analysis: A "Cash Machine"

"All five operating groups recorded their highest-ever annual revenues with double-digit growth in U.S. dollars," said Steve Rohleder, Accenture's COO (left).  "Four operating groups also turned in strong double-digit growth in local currency."   In other words, the company's growth engine is firing on all cylinders.

Geographies.  The Asia/Pacific region had been the lead story for five quarters in a row.  But not this time.  This time, revenues in Europe exploded by 48% to $2.4 billion, widening their lead over the Americas region which also grew in double digits (up 11%).


Industries.  Whenever you have the "weakest" line of business growing at 19%, you know you must have had a great quarter.  In Accenture's case, the two "weakest" industry segments were High Tech & Communications and Financial Services, each of which was up by an impressive 19% over the same quarter a year ago.


Horizontal Platforms.  There has been a strong demand for Consulting throughout the year and across all five lines of business, Rohleder said.  Consulting now accounts for $11.9 billion or 60% of the company's $19.7 billion revenue.  And it's also growing faster than outsourcing.


New Bookings.  Accenture's fourth quarter bookings of $4.9 billion were about even with those a year ago, but they added to the FY07 total of $22 billion, a new annual record.  About 63% of that total came from consulting, with the remainder being outsourcing engagements.  For the full year, consulting represented 58% of the total, while outsourcing accounted for 42% (see the chart).


Globalization of Resources Continues

Accenture is continuing to invest in the expansion of its global delivery network, ending the year with more than 71,000 people, a 48% increase over FY06.  The greatest expansion is continuing to take place in Asia/Pacific, where headcount grew by 65% in the last year.  It was also up over 30% in both the Americas and Europe.  India and the Philippines are the biggest magnets for global delivery applications.\


Summary & Outlook: Main Street vs. Wall Street

"We have a powerful momentum going and enter the (fiscal) year (2008) with a great deal of confidence to maintain our leadership position," said Green.  "Our annual results reflect strong expansion across all three dimensions of our business. We also drove profitability through effective cost management and overall operational discipline. Finally, we gained market share globally and grew well above our proxy peer group."


So overall, "we entered the year with a great deal of confidence in our ability to keep building on our leadership position in the industry," he summed it up.

It remains to be seen if the so far skeptical markets accept Accenture's optimism.  At least in this company's case, they won't have to take its executives' words alone.  All they need to do is look at the results.


"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, who are now reading the complete Annex Bulletin, along with many tables and charts that back up our forecast.  

Qualified media and friends of Annex may request a TEMPORARY User ID and Password by clicking here and explaining why they wish to have access to this particular Annex Bulletin.  Or call Bob Djurdjevic at 602-824-8111 (cell) to promise not to copy it or otherwise republish it.

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Happy bargain hunting!

Bob Djurdjevic

Market Update: Stock Moves Up Sharply the Morning After

SCOTTSDALE, Sep 28 - It was almost as if the market read our above report overnight before it was actually published.  The Accenture stock moved up sharply "the morning after," rising five points to $40 in early morning trading. 

"We know the markets can be nonsensical for a long time," we wrote last night. "But eventually, they tend to right themselves, like a sailboat when the wind changes direction..." we wrote last night. "Could this be a start of a trend reversal?"

Guess investors are finally waking up to the value Accenture brings to the table for its customers and shareholders alike.  Interestingly, this spurt happened at a time this morning when the whole market was slightly down.  Accenture's surge is also helping pull up the shares of its competitors, including that of the laggard EDS, whose stock has been in the doldrums in the last two months since the change in its leadership was announced.

Institutional Owners Flee in Third Quarter

SCOTTSDALE, Nov 25 - Nearly two months after Accenture reported its fourth quarter and full year 2007 business results, and the investors basically shrugged off the strong finish, it is becoming clearer WHY that is happening.  Looks like the major institutional shareholders are starting to abandon ship.  Eleven of top 15 reduced their holdings in the third quarter.  Seven of them disappeared altogether from the Top 15 since a year ago.


Meanwhile, the percentage of institutional shareholdings as of Sep 30, the latest date for owner data, has gone up to 82% (from about 50% a year ago).  And so has their impact on the price of the stock, especially considering some of the big price swings in the third quarter (see above charts).


For additional Annex Research reports, check out... Annex Bulletin Index 2007 (including all prior years' indexes)

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Volume XXIII, Annex Bulletin 2007-33
September 27, 2007

Bob Djurdjevic, Editor
(c) Copyright 2007 by Annex Research, Inc. All rights reserved.
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