■ Optimism for 2018: We attended the annual Credit Suisse TMT
conference in Scottsdale, Arizona, featuring around 140 companies and
over 400 investors. We hosted fire side conversations and meetings with
Capgemini, Cognizant, Luxoft, and SAP. We also had the opportunity to
interact with companies like Intuit and ServiceNow, which have direct readacross
to European stocks. Based on the conference, we reiterate our
current Outperform ratings on Capgemini and Cognizant, and our
Underperform ratings on Luxoft and Micro Focus.
■ Going digital: In terms of themes, we were repeatedly struck by the
consistency of the following 3 messages: 1) The shift from PC to mobile,
and the challenge this brings in engaging with consumers and facilitating
commerce in a mobile world; 2) the value of data and also data analytics,
and; 3) Enterprises are looking to fund the necessary investment into
digital capabilities but cutting run-rate or legacy costs. We think pressure
on legacy points to our Underperform thesis on Micro Focus.
■ Positive sentiment into 2018: As a generalization, we thought corporates
were positive about trading momentum into FY18. Meanwhile investors are
optimistic that tech will continue to outperform. Specifically, a preconference
survey indicates that investors believe tech will be the best
performing sector in FY18. Against a positive tech backdrop, we note that
IT services remains one of the least preferred sub-sectors – see Figure 1.
We believe a combination of resilient trading outlooks and low investor
expectations creates a base for IT services stocks to perform well in FY18,
just as they did in FY17. Hence, our continued positive stance on
Capgemini and Cognizant.