IBEX - IBEX Limited: Rating Upgraded To Buy Healthy Balance Sheet And Low Valuation

2023-09-26 01:48:41 ET

Summary

• IBEX Limited stock has fallen over 46% since the last report, making it undervalued.
• The company's FY23 and Q4 FY23 results show revenue growth, strong margins, and higher net income.
• Technical analysis suggests a strong support zone and potential for upside, making IBEX a bullish investment.

IBEX Limited ( IBEX ) provides customer service outsourcing and various services. In my last report , I mentioned avoiding buying the stock, and since then, its stock price has fallen more than 46%. I think now the stock has become undervalued. IBEX recently announced Q4 FY23 and FY23 results, and I will analyze the results in this report. I believe now is the time to buy the stock. The valuation seems cheap, the balance sheet looks solid, and the technical setup is perfect. Hence, I am changing my rating to buy from a hold.

Financial Analysis

IBEX recently announced its FY23 and Q4 FY23 results . The revenue for FY23 was $523.1 million, a rise of 6.1% compared to FY22. Higher revenues from its BPO 2.0 clients and strength in its health tech and retail & e-commerce verticals were the major reasons behind the revenue rise. The revenue from its BPO 2.0 clients grew by 18.5% in FY23. Its healthcare vertical benefited from the strong organic growth they have witnessed, dependent on the onshore and offshore winds, and the retail & e-commerce vertical benefited from the strong growth in various offshore geographies. Its EBITDA margin for FY23 was 12.7%, which was 9.1% in FY22. The improvement was mainly due to client price increases. The net income for FY23 was $31.5 million, a rise of 47.1% compared to FY22. Stronger operating performance benefitted the profitability of the company.

The annual result was quite solid, and the company ticked every box with revenue growth, strong margins, and higher net income. The quarterly results were also impressive. Although the revenue growth wasn't great in Q4 FY23, it was still positive. Not only its financial performance but its balance sheet is also looking attractive. It had cash and cash equivalent of $57.4 million by the end of June 2023, which was $48.8 million in June 2022, and this company is almost debt-free, which is impressive. So, the company has no debt and has a strong cash position. Hence, I believe IBEX has a great growth potential.

Technical Analysis

It is trading at $14.9. There is a strong support zone at $9.5-$11.3, and I have marked it in the chart. When the stock debuted in 2020, it kept falling, but when it reached the support zone, the stock rebounded, and it moved up around 170% from the support zone. After rallying 170%, the stock went into a downtrend and reached the support zone for the second time, and this time, after touching the support zone, the stock rallied 175%. So, this shows the significance of the support zone. Even during the Covid crash and slowdown in the stock market in 2021-2022, the stock didn't breach the support zone. It shows that buyers are active around this area, and recently, the stock reached the support zone for the third time. And after touching the support area, the stock price has gone up by 30%. So, I believe buyers are now active in this stock, and it has solid upside potential. Hence, I am bullish on IBEX.

Should One Invest In IBEX?

First, talking about IBEX's valuation. IBEX has a Price / Cash Flow [TTM] ratio of 6.54x compared to the sector median of 12.92x and has an EV / EBITDA [FWD] ratio of 4.31x compared to the sector median of 10.87x. In addition, if we compare it to some of its peers like SRT , CNDT , and TASK . We can see that IBEX is trading at a lower valuation compared to its peers. SRT, CNDT, and TASK have an EV / EBITDA [FWD] ratio of 5.76x, 5.42x, and 5.09x. So, when compared to its peers and the industry standards, I think IBEX is undervalued. Since my last report, it has crashed around 46%, and now, I think it has come around the buying level. The reason I am saying this is because the company is showing positives in all aspects. Its valuation has become cheap, its financial performance is impressive, the balance sheet looks quite strong, and the technical chart shows bullish signs. I am not judging it only based on current financial performance, but I think it has great growth potential because the market they work in is rapidly growing. The BPO market was valued at $262 billion in 2022 and is expected to grow at a healthy CAGR of 9.4% until 2030. So, the opportunity to grow is vast for the company. Hence, considering all the positive aspects, I assign a buy rating on IBEX.

Risk

They have already incorporated AI into their products and will do so in the future. They are probably going to need AI to provide their future service offerings. Although AI has many advantages, it also has risks and problems for their business. There is an emphasis on the 'speed to market' for their initiatives because some of the newly released third-party AI solutions can potentially replace some of their lower-tier service offerings. Successful problems with data sourcing, technology integration, program bias in decision-making algorithms, security issues, and the protection of personal information and privacy may hamper the successful and timely adoption of this technology. At the same time, AI solutions are evolving and are not perfect. Their brand and reputation could be damaged, and their operational outcomes could be affected if their AI solutions are implemented before they are fully optimized and clients regard the output from those solutions as dubious or wrong. However, suppose they are too slow to market and are unable to quickly and effectively integrate and use AI in their services. In that case, they will lag behind the competition, which could adversely influence their operational performance and future prospects.

Bottom Line

All the elements necessary for buying a company are present here. They have a healthy balance sheet with impressive financial performance, cheap valuation, and a perfect technical setup. Hence, I upgraded my rating to buy from a hold.

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