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Amdocs Limited Posted By : admin
Posted On : Friday, December 12, 2014
Company Name : Amdocs Limited Investment Range : Long
Ticker : NASDAQ:DOX M.Cap.Range : Large-cap
Country : US Stock Price : 47.10
Description :        

Description of Business

Amdocs Limited is a provider of software and services for communications, media and entertainment industry service providers. The Company develops implements and manages software and services associated with business support systems (BSS) and operational support systems (OSS). Its product offerings consist of a software portfolio developed to provide customer experience systems functionality for service providers. The software systems support the full span of the customer lifecycle: revenue management, customer management, service and resource management and service delivery. In fiscal 2010, it acquired jNetX and MX Telecom. In March 2013, the Company together with Singapore Telecommunications Ltd opened a development centre in Israel.

In managed services contracts (approx 50% of revenue) and other long term contracts - revenue from the operation of a customer's system is recognized either as services are performed based on time elapsed, output produced, volume of data processed or subscriber count, depending on the specific contract terms of the managed services arrangement. Managed services contracts are long term and not subject to seasonality.

Positives

  • Low capex and high cash flow business with no debt
  • Global leader in its field having worldwide presence
  • Potential to increase dividend and hence a possible dividend play
  • Steadily increasing earnings with good cash generation

Negatives

  • Majorly dependent on one sector for revenues (telecom). If telecom companies face heat in terms of low profitability, cost cutting. Players like Amdocs will be in trouble.
  • Frequent acquisitions - if any of the acquisitions go wrong (especially large), it will lead to correction in share price
  • High customer concentration with AT&T is the largest customer contributing about 28% revenue, Sprint Nextel and Bell Canada account for 10% each. Top 10 customers’ account for 70% of revenues.
  • As a result of regular acquisitions, the company has accumulated large goodwill on their balance sheet which might lead to future write off

Industry

DOX operates within the telecom operations management systems market (TOMS) which is estimated to be a roughly $78B revenue opportunity with 4% annual growth by industry analysts such as IDC and Gartner.

Within the TOMS market, DOX’s primary products are BSS and OSS. Roughly 50% of DOX’s revenue comes from providing managed services with BSS and OSS markets. Gartner estimates the market opportunity here at roughly $14.7B in 2011, with a 6% average annual growth rate.

Competitors     

CSG Systems International and Comverse

Summary

Company has reiterated that they would grow at double the industry growth rate (with industry growth being 2%). DOX is the leader in terms of revenue management/billing service providers globally with market share of 26-27% (and maintained its leadership position since last 7-8 years)

Migration from pre paid to post paid, 3G-4G adoption in emerging markets to support revenue growth. As customer data usage increases (3G, 4G) - there is need to upgrade billing systems.

Over 75% of revenue is managed services/maintenance/support contracts. As these contracts are long term in nature (5-8 years), this ensures the company with growth visibility, stickiness of consumers and switching costs for carriers.

Valuations

Valuations may look expensive if it is strictly looked from a PE point. However, given strong free cash flow generation - the stock does hold value. 

 
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