Why WNS is a solid bet for long-term growth


SMB (NYSE: WNS) is an India-based low-key company that specializes in outsourcing. Although not closely followed by investors, it has generated strong returns throughout its history.

In this episode of “Beat and Raise”, recorded on January 21Fool contributors Jeremy Bowman and Brian Withers discuss WNS’ third-quarter fiscal performance and how it is adjusting to an increase in automation around the world.

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Brian Wither: SMB. I’m not sure what WNS stands for, but they’re into business process outsourcing, like you have a back office, usually it’s a call center. But even accounting and other things. These guys handle all kinds of stuff for their clients.

Jeremy Bowman: Yes, they have a wide range of clients and a wide range of different tasks. They even do auto claims for repairs for one of their clients. They made a lot of acquisitions over the years and that’s how they branched out into travel, insurance, retail and manufacturing. They truly serve all industries. Let me share my screen and get the slideshow.

Withers: Yeah, that’s a recent rec from global partners, I think.

Archer: Yeah, they are based in India, it should be mentioned. But it’s a global business. They serve customers all over the world. But yeah, pretty solid report. They announced their results yesterday morning. The stock really hasn’t moved at all. It was down maybe a percent yesterday and recovered some of that today. It’s not a company that really gets a lot of attention. You can also see it in their chart, they pretty much traded in line with the S&P500 for most of the last year, which I think is interesting or certainly when you compare it to other tech stocks. They report two revenue figures, one is GAAP revenue, and then they also have revenue less repair payments for this auto claims business that they run, so they prefer to use the adjusted revenue one.

It was up 16.2, I think it was 16.2% to $261.2 million, beating the forecast. Adjusted earnings per share also rose $11 from estimates at $0.83. They’ve raised the low end there and they’ve got a funny fiscal calendar as well. They have just completed their third quarter, so they are entering their last quarter of the year. They raised the bottom of that guidance range from $984 million to $1.01 billion to $1.03 billion. This was again the adjusted figure, so a fairly narrow range. They were up about 17% from last year and they also increased their EPS. I think it was around $3.14 before, it’s between $3.30 and $3.38, up 23%.

The company has a few strengths. They have about 375 customers. It’s the kind of business where you handle expensive accounts, big clients, isn’t it? That’s pretty big outsourcing work they do. They had 11 new customers during the quarter in 26 expansions. I think it’s strong enough for them.

Withers: Yeah those expansions I think that’s especially important as those big companies start outsourcing things to a company like WNS I imagine they’re nervous about getting the quality that they need, or do they get the responsiveness they need. Basically, they are potentially accepting jobs in the United States and moving them to a low-cost region. It’s an experiment for a lot of companies to start doing this and so it’s really cool to see expansions and WNS gaining more business from existing customers.

Archer: To the right. I also think it’s a kind of business where if you go down this path of outsourcing, it’s going to be hard to roll back that business.

Withers: Yeah. I can’t imagine you backing down [laughs] and de-outsource something.

Archer: Yeah. It must be wrong, I think. It’s one of the biggest companies I think, it’s been doing it for almost 20 years. Then profitability, 21% operating margin, which also surprised me for this kind of activity. They certainly derive a lot of value for themselves here.

Withers: OKAY. That’s a dash, not a minus, fine. [laughs]

Archer: Yeah, sorry, that’s dash. I should have used the colon there. Yeah, I think the valuation is pretty good right now, around a 25 P/E, which if you look at those growth numbers, is pretty good. No real debt on the balance sheet. The only concern they address was the risk of COVID coming back.

Withers: Left or up, it will bring you back.

Archer: A little jostled. It was a headwind for them, they have a big online travel agency client. But based on their advice, they certainly don’t see any headwinds right now from omicron. I think it seems like the kind of company that sets them up and down most quarters and that you can count on for steady growth.

Withers: The other interesting thing, I don’t know if I read it on the conference call, it’s just on their website for investors. They talked about it a bit, since they outsource somewhat banal and repetitive tasks, one could think of as accompanying as UiPath, which automates business processes, will they be overtaken by technology? You know what, they partner with UiPath, they are a UiPath customer and use it to integrate and make their business more efficient. They are very advanced in technology from this point of view and it is not just a game of manpower.

Archer: Yes, that’s a good point. Yes, they also use technology and automation to their advantage.

Brian Withers has no position in the stocks mentioned. Jeremy Bowman has no position in the stocks mentioned. The Motley Fool owns and recommends UiPath Inc. and WNS. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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