scorecardresearchBrokerages cheer Persistent Systems' MediaAgility acquisition; see up to 28% upside in the stock

Brokerages cheer Persistent Systems' MediaAgility acquisition; see up to 28% upside in the stock

Updated: 16 Mar 2022, 11:30 AM IST
TL;DR.

With this acquisition, Persistent aims to launch its Google business unit to accelerate cloud-led digital transformation and cross-sale its vertical and industry solutions to Google Cloud marketplace.

Persistent's acquisition of MediaAgility has made brokerages and analysts positive on the stock as most of them believe it will help the company to scale up its Google cloud practice in coming years.

Persistent's acquisition of MediaAgility has made brokerages and analysts positive on the stock as most of them believe it will help the company to scale up its Google cloud practice in coming years.

Shares of IT player Persistent Systems traded in the green a day after the company announced the acquisition of MediaAgility Inc.

In a late regulatory filing on March 15, the company announced the acquisition of Google cloud premium partner MediaAgility Inc. for $71.7 million. MediaAgility is a Gartner-recognised public cloud transformation services provider with a specialisation in the Google Cloud ecosystems.

With this acquisition, Persistent aims to launch its Google business unit to accelerate cloud-led digital transformation and cross-sale its vertical and industry solutions to the Google Cloud marketplace.

Persistent's acquisition of MediaAgility has made brokerages and analysts positive on the stock as most of them believe it will help the company to scale up its Google cloud practice in coming years.

Global brokerage firm Nomura said Persistent remains its top Midcap IT pick and it highlighted that MediaAgility acquisition will bolster the company's cloud offerings even as it will be dilutive to earnings per share (EPS) of the stock in the near term. Nomura has a 'buy' call on the stock with a target price of 5,530.

Among the domestic brokerages, Sharekhan by BNP Paribas has a 'buy' rating on the stock with an unchanged target price of 5,550, which is a 28 percent upside from the stock's March 15 close of 4321.05 on BSE.

"Persistent is well-poised to deliver industry-leading growth in FY2023, led by its strong digital competencies and broad-based demand. The acquisition will strengthen its partnership with Google and enable it to capture opportunities in high-growth markets. We believe that revenues from MediaAgility would add around 3 percent to Persistent’s top-line and the transaction is valued at 2.8 times of CY2021 revenues," said Sharekhan.

"At the current market price, the stock trades at a valuation of 38 times and 31 times its FY23 and FY24 expected earnings, justified considering the strong revenue growth potential, robust deal wins and strong demand. We expect dollar revenue and earnings to report a CAGR of 24 percent and 25 percent, respectively, over FY2022-FY2024E," Sharekhan added.

Brokerage firm Emkay Global, too, has a buy call on the stock with a target price of 4,600 and it also believes that the deal accelerates and deepens Persistent’s Google Cloud competencies and bolsters its vertical and industry solution capabilities within the Google Cloud ecosystem.

"It will enable Persistent to introduce its vertical and industry solutions to the Google Cloud marketplace and enhance its end-to-end service line offerings with Google Cloud specializations. It will also augment existing IP and accelerators to support open cloud adoption and the cloud-native journey. The deal will bolster existing vertical expertise in BFSI and HCLS and add new expertise in the Media, Entertainment & Gaming vertical," Emkay said.

"The acquisition also enables PSYS to expand its footprint within over 35 new enterprise service clients of MediaAgility by bringing its full portfolio of offerings and solutions. With the growing demand for Google Cloud expertise, this acquisition will expand Persistent’s ability to execute cloud-based digital transformation journeys for its global clients, paving a way for the company to gain market share in Google Cloud-led transformation," Emkay added.

Emkay also pointed out that the transaction is expected to add nearly 3 percent revenue in FY23, but it will be low single-digit dilutive to EPS due to a 45-50bps EBITM impact (employee retention payment, amortization charges) and lower other income.

Market sentiment on the stock is ‘moderately positive’, according to a MintGenie poll and an average of 26 analysts has a ‘buy’ call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 16 Mar 2022, 11:30 AM IST