TeleTech Holdings, Inc. (TTEC)
TeleTech Holdings is a technology services company whose main business is the provision of telephony services to businesses. The company operates call centers and BPO centers through which it connects customers to their companies. Through the provision of the telephony services, it creates a lasting customer experience, which in turn results in growing revenues and profitability of the companies that it represents. The various industries that it serves include the automotive industry, financial services, healthcare, government agencies, e-commerce entities, and the hospitality industry among others (TeleTech Holdings, 2017).
In light of the above brief on TeleTech Holdings, the objective of this report is to provide a detailed analysis of the financial performance of the company based on various parameters. Central to this analysis is the focus on ratios that include liquidity ratios, profitability ratios, asset management ratios, and financial leverage ratios among others (Loth, 2017). The discussion of the financial analysis will focus on various performance measures of the company, such as investment policies, financing policies, and the dividend policy among other factors. At the end of the report is a recommendation aimed at providing the management with the most suitable alternative in consideration of the company as an investment vehicle. Throughout the analysis, great focus has been provided to the use of graphical analysis of data. All information herein used is borrowed from the financial reports of the company as presented over the last three years (TeleTech Holdings, 2017). Where applicable, reference is made to the performance of the industry in which TeleTech Holdings operates.
Liquidity Ratios
The analysis of the company’s liquidity position indicates a healthy state of affairs considering that the ratios of the company are all strong. The current ratio stands at above 2 for the three years in consideration. Best practice in finance requires that the ratio be maintained at above one meaning that the current liabilities of the company must not exceed the current assets (Loth, 2017). In this particular case, the current assets are more than twice the level of the current liabilities. By interpretation, the company's current assets allow it to fully meet the current obligations. Further, the company is a service provider, and it does not have any inventory. The question of working capital being tied up in the inventory does not arise. However, the analysis indicates that the company has high levels of current assets held up in receivables which are why the cash ratio was found to be at 0.29 in 2015, 0.39 in 2014, and 0.83 in 2013 (TeleTech Holdings, 2017). The worrying trend is that the quick ratio has been falling over the period in consideration. The ratios are as represented in the chart below.
Chart 1: Liquidity Ratios
Asset Management Ratios
The second major class of ratios analyzed for purposes of this report includes the asset management ratios. By analyzing the asset management ratios, it is possible to shed light on how well the company employs the assets in the generation of revenues and profit for the company (Loth, 2017). The first ratio is the accounts receivable turnover ratio. The receivables ratio stood at 4.54 in 2015 while in 2014 the ratio was found to be 4.49. In 2013, the ratio was recorded at 5.05. The implications are that the revenues of the company are more than 4.5 times the level of accounts receivable (TeleTech Holdings, 2017). Further, the revenues of the company exceed the total assets of the company. The asset management ratios are as shown in the table below.
Financial Leverage Ratios
The financial leverage ratios help in indicating the company’s exposure to debt capital (Loth, 2017). Analysis of leverage ratios over the last three financial years indicates that debt levels as compared to the assets of the company have risen from 43% in 2013 to 47% in 2014 (TeleTech Holdings, 2017). The trend is also evident in debt to equity ratios of the same period. In 2013, the debt to equity level was at 0.77. It rose to 0.83 in 2014 and further to 0.90 in 2015. Further analysis indicates that the total equity proportion to the total assets also reduced over the same period as explained by the changes in the debt levels. The ratios are as presented in chart two below. Notably, the changes in debt levels are reflective of the state of affairs in the technology industry where many businesses are financed by debt capital (TeleTech Holdings, 2017).
Chart 2: Financial Leverage Ratios
Profitability Ratios
Focusing on the profitability ratios, the data indicates that about 29% of the firm's revenues end up in the gross profit (TeleTech Holdings, 2017). Essentially, this is after the deduction of the cost of service. The implications are that the cost of service is at least 70% of all revenues. The analysis of the net profit margin indicates that only 5% of the revenues contributed to the net profit of the company in 2015 (Yahoo Finance, 2017). In 2014 and 2013, the net profit margin stood at only 6%. The implications are that the business is characterized by low-profit margins. Compared to the technology industry, the company outperformed many of the traditional players in that majority are characterized by low-profit margin. However, the company appears to have underperformed the commercial services technology companies, which reported 8% to 10% of net profit margin. The implications are that the costs of running the operations of TeleTech Holdings are considerably higher than those of the competition.
Focusing on the return on assets and return on capital ratios, the company has maintained an average of 8.5% over the last three years. The stability in the returns of the company is reflective of the stability in the company’s investment strategies and the utilization of the assets and capital of the company in the generation of returns. Further analysis indicates that the return on equity was maintained between 15% and 17% over the period in consideration and as an effect, TeleTech Holdings is considered to be one of the companies reporting good performance. The profitability ratios as summarized as shown in chart three below (TeleTech Holdings, 2017).
Dividend Policy
TeleTech Holdings regularly pays dividends. Analysis of the company’s dividend policy indicates that dividends are paid on a semiannual basis, in March and September of every year. The last annualized dividend payout stood at $0.40 (TeleTech Holdings, 2017). The dividend yield stands at 1.31% while the payout ratio stands at 29.4%. The dividend payout has not changed over the last three years. However, it is the dividend yield that gains most attraction. From research, the dividend yield from the services industry averages at 1.92% (Yahoo Finance, 2017). The implications are that TeleTech Holdings has underperformed the industry in light of the dividend payments.
Market-Based Ratios
At the time of preparing this report, TeleTech Holdings traded at a market price per share (MPS) of $30.55 (Nasdaq, 2017). The company is trading close to the highest price recorded over the last five years. The highest price stands at $31.65, and it was recorded on December 16, 2016. Subject to this price alone, a hold recommendation has been extended for the shares of the company. Notably, the growth in the value of the company’s shares has been due to the increased repurchase of the company’s shares. In November 2016, the company increased its repurchase of shares, and as a result, the shares broke the three-day moving average in a bullish trend (TeleTech Holdings, 2017).
Focusing on other market-based ratios, the analysis of Teletech Holdings indicates that it is currently trading at a price to earnings ratio of 22.24. In 2015 the ratio was recorded at 20.44 (TeleTech Holdings, 2017). However, the ratio is expected to fall to a stronger position of 17.59 in 2017 and probably to 0.03 in 2018. The projections are based on the company’s recent announcement of continued investment and the expectation that the ongoing investments will lead to increased growth in the earnings of the company. Compared to the industrial average of 22, the PE of Teletech Holdings is considerably at par with the industry. The expectations of increased returns in 2017 are the basis of a strong hold recommendation for the company.
Focusing briefly on the EPS reported, it is evident that TeleTech Holdings has reported a growing EPS over the period in consideration. The growth in the EPS is not supported by growth in the income of the company. Rather, it has been as a result of share repurchase program by the company, which has resulted in the reduction in the numbers of outstanding shares over the period in consideration. As such, the EPS ought not to be considered as per the current indications of the company. Nonetheless, it is expected that the weighted EPS of the company is set to grow tremendously in 2017.
Investment
Analysis of the management commentary indicates the company’s focus with regards to investment policies. The company is focused on growing its capacity and ability to provide services to more clients in the industry. From the management’s reports, the company has continued to heavily invest in technology and facilities that will enable it to serve more customers. This is considerably important because of the nature of its business and the diversity of the client profiles served by the company (TeleTech Holdings, 2017). One of the key investments has been the acquisition of Anelka in September of 2016.
The investments mentioned in the management reports are supported by financial data from the TeleTech Holdings’ financial statements. The statement of cash flows indicates continued growth in the investment expenditure. The company has continued to invest heavily over the years, and it is on this basis that the company is expected to expand the earnings per share reported by the company. Tying the investments to the financing activities, analysis of financial data indicates an increase in the levels of debt (Yahoo Finance, 2017). The debt has been dedicated to the share repurchase program indicating the conversion of equity capital to debt capital. The implications are that TeleTech Holdings has continued to lower the cost of capital, especially when considered that shareholder's equity is more expensive as compared to debt capital and secondly, the company benefits from the tax shield effect.
Recommendations
In concluding, this analysis recommends a strong hold decision for investors considering Teletech Holdings. The recommendation is based on various findings. Firstly, the dividend yield of the company is considerably lower than the industrial averages. Secondly, the company’s shares are trading at a price close to the maximum price recorded over the last five years. Thirdly, the company’s price to earnings ratio is considerably high being at 22.47 and higher than the industrial averages (Yahoo Finance, 2017). The other reason is the finding that the company's profits have been almost stagnant for the period in consideration. The zero growth rate does not support growth in the market price of the company and more particularly, it does not explain the recent rises in the price of the company's shares. Rather, the growth in the share price has been as a result of the company's investment in share repurchases that signaled to the market that the company was underpriced. Moving forward, it is expected that there will be a price correction and that the PE of the company will be stronger. It is, therefore, important for the market to consider a hold recommendation in the short-run.
References
Dividend.com. (2017). Best Business Services Dividend Stocks. Retrieved from http://www.dividend.com/dividend-stocks/services/business-services/
Dividend.com. (2017). TeleTech Holdings, Inc. Retrieved from http://www.dividend.com/dividend-stocks/services/business-services/ttec-teletech-holdings-inc/
Loth, R. (2017). Financial ratio tutorial. Retrieved from http://www.investopedia.com/university/ratios/
NASDAQ. (2016). Business Services Stock Outlook - June 2016. Retrieved from http://www.nasdaq.com/article/business-services-stock-outlook-june-2016-cm639921
Nasdaq. (2017). TeleTech Holdings, Inc. common stock quote & summary data. Retrieved from http://www.nasdaq.com/symbol/ttec
TeleTech Holdings, Inc. (2017). Investor relations. Retrieved from http://investor.teletech.com/phoenix.zhtml?c=78202&p=irol-irhome
TeleTech Holdings, Inc. (2017). TeleTech acquires Canada-based Customer experience provider Atelka. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=78202&p=irol-newsArticle&ID=2221085
Yahoo Finance. (2017). TeleTech Holdings, Inc. Retrieved from https://finance.yahoo.com/quote/ttec?ltr=1
Appendix
Table 3 Shows the Financial Data Summary
