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Endava's Quiet Period Ends: What The Street Thinks

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Endava's Quiet Period Ends: What The Street Thinks
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Shares of Endava PLC - ADR (NYSE: DAVA), a United Kingdom-based technology services provider, traded for the first time on the NYSE in late July, and Tuesday marks the end of the "quiet period." Here's what some on the Street are saying about the stock. 

The Analysts

  • Citi's Ashwin Shirvaikar initiated coverage of Endava's stock with a Neutral rating and $30 price target.
  • Morgan Stanley's Brian Essex initiated coverage at Equal-weight with a $29 price target.
  • William Blair's Maggie Nolan initiated coverage at Outperform.

Citi: Pricey Valuation

Endava is front and center in next-generation technologies, including the Internet of Things, and there is much to like about the company — especially with its attractive exposure to the financial technology end market, Shirvaikar said in the initiation note. The stock has moved nearly 40 percent higher from its $20 IPO price and is trading at a premium valuation to its closest peers despite similar financial metrics, the analyst said, leading Citi to conclude the shares are fully valued. 

Morgan Stanley: Multiple Reflects Robust Growth Outlook

Endava is a "high-quality disruptor" that stands to gain market share from legacy companies in the digital transformation services space, Essex said in the initiation note.

The worldwide digital transformation services market is estimated to grow at a 19.7-percent compounded annual rate through 2021, the analyst said. Endava is better-positioned than legacy vendors given its unique expertise across verticals like payments and financial services, he said. 

Although Endava should experience a growth rate faster than the overall market, Morgan Stanley's $29 price target implies a 35 times P/E multiple on 2019 estimates compared to its closest peer at 26.7 times and the broader group median of 26.2 times.

A more positive stance on the stock could be justified if the company oversees a meaningful expansion in the U.S. or shows better-than-expected growth in current verticals, Essex said. 

William Blair Sees Sustainable Top-Line Growth

The bullish stance for Endava's stock is based on multiple avenues of growth that could sustain a revenue growth rate of more than 20 percent, Nolan said in the initiation note.

Revenue from the company's 10 biggest clients rose an average of 26 percent year-over-year through March, which implies it has built a reputation of domain expertise, the analyst said.

It would be reasonable to assume the company can capitalize on its reputation and not only expand existing relationships, but win new clients, in William Blair's view. 

The North American market accounted for 16.3 percent of revenue in 2017, a figure that should rise 25 percent by the end of 2018, Nolan said. The region should be a driver of growth over the medium term and could account for one-third of total revenue over time, she said. 

Nolan named the following as growth areas for Endava:

  • Expansion of nearshore delivery.
  • Expansion in other geographic regions.
  • Continued tuck-in acquisitions.
  • Vertical expansion.

Price Action

Endava shares were dropping 5.2 percent to $26.07 late in Tuesday's session. 

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Photo courtesy of Endava. 

Latest Ratings for DAVA

DateFirmActionFromTo
Nov 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Oct 2018CitigroupMaintainsNeutralNeutral
Aug 2018Deutsche BankInitiates Coverage OnHold

View More Analyst Ratings for DAVA
View the Latest Analyst Ratings

Posted-In: Ashwin Shirvaikar Brian Essex Citi IoTAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

 

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