av ram,
Here are SYNT highlights from the BANCBOSTON RS report, entitled 'CONSULTING AND IT SERVICES
Quarter and Year (P)Review'
FYI, SYNT is not a 1999 pick.
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1999: In our view, this year has the potential to be even more troublesome than 1998 for
IT services companies. While an Information Week survey of 100 IT executives found
that, in general, companies intend to increase their IT spending in 1999 and Y2K
remediation spending has the potential to disrupt these plans. 57% of the executives
interviewed stated that they expected to increase their IT budgets in 1999 in spite of the
fact that more than 50% of these same executives said that Y2K is affecting spending.
However, lurking in the background is the potential that companies have overestimated
their readiness for Y2K and that this will cause a dislocation of non-Y2K related
expenditures. Given this backdrop, we believe that several trends will emerge which are
of importance to investors in the sector.
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· The Artist (formerly known as Prince) will reap ungodly royalties for the replay of his song “1999.”
(Hey, we didn't say that all of our predictions had to be related to the IT services sector.)
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Last year we had a decent amount of success in picking four investment ideas for 1998. The stocks that
we chose were Claremont Technology Group, ECsoft, International Network Services, and Syntel. As
evidenced in the following table, all would have rewarded investors with significant upside.
Interestingly, the stock that showed the best performance from 12-month low to 12-month high (Syntel)
was actually the worst performer if held for the whole year. Including Syntel, the group posted an
average return of 83%, about three times that of the S&P 500 over the same period. The star of the
group was International Network Services, which appreciated 188% during 1998.
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FOURTH QUARTER REPORTING DATES
Company Rating Reporting Date Conference Call
Syntel (SYNT) LTA Week of 2/15 TBA
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Syntel (SYNT $13.50)
BRS Estimates First Call
SYNT 4Q-98 1998 1999 4Q-98 Consensus
Revenues ($MM) $45.0 $173.4 $204.0 --
EPS $0.14 $0.63 $0.64 $0.14
Company Description: Syntel is a worldwide provider of systems integration, applications
development, and professional IT staffing and outsourcing services to Fortune 1,000 companies and
government organizations. Using its Global Service Delivery Model, Syntel has the flexibility to
deliver to each customer a unique mix of services on-site at the customer's location and off-site at its
U.S. and offshore locations.
Rating: Long-Term Attractive
Outlook:
· We are comfortable with our second-quarter revenue estimate of $45 million and EPS estimate of $0.14.
· In our view, Syntel has been aggressively reducing its dependence on Year 2000 related revenue opportunities. While in the long term this will aid year-over-year growth comparisons, it suggests
to us that the company has not seen this as an effective way to generate long term outsourcing contracts.
· While Syntel may not be seeing the success in converting Year 2000 work into longer term relationships that we expected, it has not been fruitless. Syntel has recently completed Year 2000 work for Allied Van Lines and has moved on to enterprise and applications development work for the company. In addition, Syntel Europe has signed a contract with UMBRO. While the UMBRO contract includes some Year 2000 work, the emphasis is on broader systems development and
integration.
· As budgets come under pressure from Year 2000 spending and economic uncertainty, companies historically rely more heavily on the use of outsourcers. By outsourcing services, companies are able to reduce overhead and invested capital, while satisfying ongoing IT needs. We believe Syntel is well positioned to benefit from this trend. In addition, with offshore facilities in India, Syntel gains an advantage over most domestic competitors by being able to provide these services at a lower cost. |
