Also, check out: "1998 IT Services Hexathlon," "IGS Profits, Productivity Surge," "EDS: Growth Slows, Equity Grows," "CSC: A Mouse That Roars?", "A Solid Quarter", "EDS Sets New Records", "Andersen: Another Super Year", "Cap Gemini: The Most Improved?"
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|Analysis of Cap Gemini Group's 1998 Annual
A "French Microsoft?" Not Quite, But Cap's 53 P/E Ratio Proves Euro-Euphoria Is On
PHOENIX, June 18 - Cap Gemini Group (CGG), our "photo finish" silver medallist in the 1998 IT Services Hexathlon (see Annex Bulletin 99-16, 5/25/99 and 99-03, 1/29/99), has just released its 1998 Annual Report. And, besides glorifying the Native American (Indian) art, the report showed that this French-based multinational seems to be becoming a "French Microsoft" of the late 1990s.
No, don't look for the Cap Gemini shutters to open where the Microsoft Windows are shut. But CGG's Paris Bourse's P/E ratio of 50 as of the end of 1998 (53 now), is not too shabby compared with the 62 P/E ratio of the world's most valuable company (Microsoft). And it is much better than IBM's puffed up P/E ratio of 34, or CSC's at 30. In fact, CGG, a $4.5 billion company, is now more valuable than the much larger CSC (a $7.7 billion firm). CGG now has a market capitalization of $10.4 billion, vs. CSC's $10.3 billion.
That's because for three years in a row now, the CGG shareholders have seen their market capitalization double (in French Francs - see the chart). In U.S. dollars, that was a staggering 7.25-fold surge, or 94% compounded annually (104% in FFr) - from $1.5 billion in 1995, to $10.8 billion at the end of 1998. Even Microsoft might have been proud of that.
CGG's equity has also increased - by 53% in 1998, and by 23% compounded annually in the last three years (30% in FFr) - from $1.4 billion in 1995, to $2.6 billion at the end of 1998.
As CGG staged its remarkable turnaround in the last three years, the company was also using its profits to pay down some of its debt. As a result, CGG's debt-to-equity (D/E) ratio dropped from 0.61 in 1995, to 0.20 at the end of 1998.
In short, the CGG management focused on classical business basics and produced an enviable growth in revenues, profits and equity. In return, the Paris Bourse recognized such a quantitative and qualitative improvements with a soaring market cap.
Cap Gemini vs. IBM
Now let us contrast such a synchronous business and market performance in Europe with the stockmarket perversion which has taken place in the U.S. since.
IBM, for example, is one of CGG's main competitors. In fact, it is the No. 1 company in IT services, both in Europe and in the world (see Annex Bulletin 99-14, 5/21/99).
By contrast to CGG, however, IBM has grown its revenues and profits at a much slower rate since 1995. Its equity declined, while its debt soared. As a result, the Big Blue's D/E ratio surged from 0.96 in 1995 to 1.51 in 1998.
Yet, unperturbed by such negative business trends, the New York stockmarket has rewarded IBM's shareholders with an 8.4-fold increase in their share prices in the last five years. Go figure...
France and the U.K. continued in 1998 their neck-and-neck race for the top spot as CGG's largest national operation. In the end, France edged out the U.K. by a whisker ($1.08 billion in revenues, up 72% vs. $1.07 billion, up 83%). Together, these two CGG largest geographic units account for nearly half (48%) of the worldwide revenue.
CGG's U.S. operations were also on a fast growth track in 1998, surging by 46% - from $439 million in 1997 revenues to $642 million last year. But they will have to accelerate even such an impressive growth rate if they are to increase the U.S. market share within the CGG family of companies. As long as CGG U.S. unit accounts for only about 14% of the company's global revenues (as it has in the last three years), it will stand out as an example of an under-exploited opportunity in the world's largest market for IT services.
On the other hand, the U.S. operations are a standout in sales productivity, topping all other CGG geographic units.Happy bargain hunting!
Also, check out Annex Bulletins... "IGS Profits, Productivity Surge," "EDS: Growth Slows, Equity Grows," "CSC: A Mouse That Roars?", "A Solid Quarter", "EDS Sets New Records", "Andersen: Another Super Year", "Cap Gemini: The Most Improved?"
Editor: Bob Djurdjevic
5110 North 40th Street, Phoenix, Arizona
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