2024-03-11 14:22:03
CI&T shares have plummeted more than 20% in the last five days after the digital transformation consultancy released a guidance for this year below what the market expected and said that it identified accounting errors no cash effect.
For BTG, this sequence of events opened up a unique buying opportunity.
Despite expecting downward revisions to the paper incorporating the new guidance, BTG said that at today’s price, in all scenarios it has run the paper is always below 10-12x 2025 earnings, wrote analyst Osni Carfi.
For comparison, the average multiple for digital consulting firms like Globant, Accenture and Cognizant is 26x earnings for 2025.
“Although we believe that CI&T should trade at a discount due to liquidity and other factors, the discount seems too big,” said the analyst. “Even the group of most traditional IT services companies trades at 24x 2025 earnings.”
CI&T’s guidance for this year came in well below market projections, with the company saying it expects revenue to grow between -2.5% and +2.5% this year. BTG expected an increase of 8%, and the market consensus was an increase of 6.5%.
“But it’s not as bad as it seems at first glance (especially considering the stock’s collapse), as the Anheuser-Busch InBev hit mostly happened in the second half of last year, making the comparison basis for the first half of 2024 very strong ,” Osni wrote.
ABI, which represented 15% of CI&T’s revenue in 2022, had a problem with Bud Light last year and cut costs with several suppliers. As a result, its share of consultancy revenue fell to 7%, greatly impacting the result.
(This type of concentration is common in the sector, with Globant’s largest, for example — Disney — accounting for 10% of revenue).
The ABI cut will cause revenues of the first and second quarters of this year for CI&T are very weak in the annual comparison. But in the third and fourth quarters, the company should already grow again top linewith the impact of ABI leaving the comparison basis.
Another factor that weighed on the action in recent days was the declaration of management that it found accounting errors in the balance sheet below the EBT line, which will force the company to re-present its results from 2022.
Osni said, however, that the company has made it clear that these errors have no impact on cash profit.
The bank reiterated its ‘buy’ recommendation for CI&T with a target price of US$8, a upside 111% compared to the screen price.
The action is BTG’s ‘top pick’ in the technology sector.
The company is worth US$503 million on the New York Stock Exchange.
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