Looking for Catalysts and Surprises
After two strong years of sector re-rating, a return to EPS upgrades looks priced in here. We focus on companies where EPS can still surprise or where we see catalysts to change investor perception. Atos is our top pick, with Temenos and Telecity the best potential surprises in the mid-cap space.
We like Temenos, SAP & DS in software: After a tough period, Temenos has stabilised and we believe it has a variety of levers to drive licence growth and deliver EPS upside. We still see room for investor perception to improve here. Our stance on SAP is based on an improving macro continuing to help growth and the market warming to the business model transition. We are more cautious on DS in the very short term but see a strong setup once we get past 4Q results.
We favour Atos, Telecity & Capgemini in IT Services: We still see a SOTP discount at Atos, which
we expect to narrow this year, and M&A and deal wins are further possible catalysts. We see significant room for sentiment to turn more positive on Telecity provided the gentle improvement in growth we forecast comes through. Finally, we believe Capgemini is nicely levered into an improving macro in Europe, which could drive better EPS growth than the market forecasts.
We downgrade both Amadeus & Aveva to EW from OW: We remain very positive on the long-term
opportunities and business models at both companies. However, we feel the growth is now more fairly discounted at Amadeus and see less room for upside surprises. We fear slowing growth in Oil & Gas capex could impact Aveva negatively.
More cautious on Indra, Tieto, SOWG & Sage: Generally we feel growth prospects are fairly valued by the market and we have less confidence on upside surprises at these companies.