ACN - Accenture PLC

[Palantir]

You can't exclude share repurchases from investor return. The company's repurchases dwarf its share issuance. The company spent $2.5 billion repurchasing stock and expensed options issues of $371 million. If you don't make that assumption, you'll probably be closer to the E® that I mentioned.

 

Why? When the firm repurchases stock out of FCF, that is an investment use of cash that does not flow to shareholders, but rather is reinvested into the business, in a sense, like a capital expenditure, so I don't see why cash used for repurchase should count into the investor's return.

 

 

[cayale]

You can't exclude share repurchases from investor return. The company's repurchases dwarf its share issuance. The company spent $2.5 billion repurchasing stock and expensed options issues of $371 million. If you don't make that assumption, you'll probably be closer to the E® that I mentioned.

 

Why? When the firm repurchases stock out of FCF, that is an investment use of cash that does not flow to shareholders, but rather is reinvested into the business, in a sense, like a capital expenditure, so I don't see why cash used for repurchase should count into the investor's return.

 

Because it shrinks the share count and there is more $$$ for remaining shareholders going forward.  But as noted above, the shrink is offset somewhat by stock grant dilution, and of course, you'd rather they put the pedal to the metal when shares are cheap as opposed to when the price is rich.  I think it should be considered part of shareholder return.  It is not an investing cash flow because it serves no investment purpose.  It is return of capital, much like a dividend.

[Palantir]

Because it shrinks the share count and there is more $$$ for remaining shareholders going forward. But as noted above, the shrink is offset somewhat by stock grant dilution, and of course, you'd rather they put the pedal to the metal when shares are cheap as opposed to when the price is rich.  I think it should be considered part of shareholder return.  It is not an investing cash flow because it serves no investment purpose.  It is return of capital, much like a dividend.

 

Not quite. The effect of the repurchase is already reflected in the higher FCF/share that results from the decreasing share count, and as a result, counting repurchase as part of your return is double counting the same cash flow.

 

A dividend is very different as it immediately flows to shareholders and makes no difference on future FCF/share.

[cayale]

Because it shrinks the share count and there is more $$$ for remaining shareholders going forward. But as noted above, the shrink is offset somewhat by stock grant dilution, and of course, you'd rather they put the pedal to the metal when shares are cheap as opposed to when the price is rich.  I think it should be considered part of shareholder return.  It is not an investing cash flow because it serves no investment purpose.  It is return of capital, much like a dividend.

 

Not quite. The effect of the repurchase is already reflected in the higher FCF/share that results from the decreasing share count, and as a result, counting repurchase as part of your return is double counting the same cash flow.

 

A dividend is very different as it immediately flows to shareholders and makes no difference on future FCF/share.

 

If I stopped share repurchase the very next day FCF would be available at that higher yield over fewer shares for my (the shareholder's) consumption.  Therefore, it is not double counting; the true benefit is more accurately reflected in subsequent periods.

[Palantir]

Let's move this discussion to the general forum.

[no_free_lunch]

My 2 cents, you definitely have to include share repurchases.  As a simple example, if you reduced the share count by half (which some companies have done) all else being equal you've doubled your fcf / share.  Why wouldn't you include that?  It's a permanent increase.

[Palantir]

I agree you have doubled FCFE/s but the repurchase was used to create growth in FCFE/s and did not give you cash.

 

So say a firm is perpetually buying back stock, this will create growth in FCFE/s, but if you're assuming per share growth driven by buy backs in your model, I think you have to back it out of FCFE to prevent double counting.

[bmathews03]

I agree you have doubled FCFE/s but the repurchase was used to create growth in FCFE/s and did not give you cash.

 

So say a firm is perpetually buying back stock, this will create growth in FCFE/s, but if you're assuming per share growth driven by buy backs in your model, I think you have to back it out of FCFE to prevent double counting.

 

Are you talking about my model?  My growth rate in FCF wasn't per share, it was total. Thus no double-counting.

 

[Nicholas]

Looks like you were on the money with tour $103 price forecast....its currently $113 three years later

[valueinvestor]

Anyone still in this? I think it is quite interesting, however still could not find what makes the company different from other firms. Though it is very compelling that during the 2008/2009 crisis, they only lost ~7% of net income, and even less of EBITDA.

[elliott]

I dont think there is any "hard" difference between consulting firms. Yes, some are cheaper than others, some are skewed towards certain type of projects and sectors, etc. But they are not fundamentally different, and the one doing better than average today can do worse than average tomorrow. If one firm has been doing better than average for a long time, however, I do not think that just randomness can explain that - but certainly not the BS management likes to mention (Accenture's "we are a collection of exceptional leaders", "our positioning is unique in the industry", said in one of their recent conference calls is just crap). I would say management/culture, in the operational realm, ex not chasing a project at any cost, ie being disciplined and letting go of projects and contracts if they do not meet some criteria, and the like. Love to hear others opinions.

 

As for some of the "moats" mentioned earlier, well, my opinion is that they are barriers of entry, for new comers only. Existing relationships? Every major company has made use of at least a dozen of the big consulting firms, probably has 4-6 working for them at any one given time. Switching costs? Maintaining, supporting sales, marketing, whatever applications is not high caliber consulting, believe me - guys in support/maintenance/sevice centres are skilled, but no rocket scientists, switching from one provider can be a mess for a few months, with your users complaining and the leaving consulting firm making it hard for the new comer, but most often things calm down and return to normal just after a while, and all is forgotten and another source for complaining is found by the users - another day in the office. Skills? Consultants leave one firm for another every, what, 1 to 2 years? Knowledge moves around like crazy. And so on.

[EricSchleien]

I can you tell from personal experience that there are significant barriers to entry. I know several people including myself who have a background in consulting/coaching. I can tell you that to work with a large client, it doesn't matter how good you are. Businesses are often looking to do what is safe, what neatly fits their spreadsheets, and if it doesn't neatly fit their spreadsheets - they pass it over to HR to look over where they assume you're just a flavor of the month and teaching some bullshit that could potentially replace the bullshit they are already doing.

 

One of my colleagues has spent the past 20 years coaching people around the world and has worked with over 500,000 people. He currently works with Google, PayPal, eBay, and LinkedIn, and we are now doing shareholder activism together where we just won our first board seat last week onto a public company for a director I put up for election.

 

However, he only got those jobs because he knew people at the company who he had coached previously. If it wasn't for those connections he would have NEVER gotten in the door.

 

It's all about who you know, what's "approved", and just because you're better than the large firms (which most of my colleagues destroy the living shit out of them in terms of merit) doesn't mean you'll get a big book of business. In fact, many of the people who go out on their own tend to not make a lot of money despite the fact that they produce insane and sustainable results. I don't see that changing anytime soon and think the big companies have a huge huge huge competitive advantage simply because it's nearly impossible to get the kind of book of business these large firms get and smaller companies that have vastly superior offerings still don't stand a chance to unseat them (at least I don't see it happening anytime soon)