On Friday, KeyBanc maintained a Sector Weight rating on shares of Endava PLC (NYSE:DAVA) after the company's third-quarter financial results for fiscal year 2024 met the lowered expectations.
Endava's guidance for flat organic growth quarter-over-quarter for the fourth quarter of 2024 aligned with the lower end of the previously guided range, excluding foreign exchange impacts. Including foreign exchange, the guidance was slightly below expectations.
The company also reported revenue expectations from its recent GalaxE acquisition, which was finalized on April 10, 2024. The acquisition is expected to contribute approximately £21M, or 11% of Endava's fourth-quarter revenue, which matches the forecasted 12% additive revenue.
Despite incurring one-time charges of around £7.5M during the quarter, Endava surpassed profit expectations, posting earnings of £0.22 per share compared to the consensus estimate of £0.18.
The updated guidance from Endava suggests an increase in selling, general, and administrative (SG&A) expenses in the fourth quarter of 2024, along with additional financing costs related to the GalaxE acquisition. Analysts' consensus estimates vary, with some including the impact of GalaxE while others do not, indicating a potential upward bias in consensus forecasts, assuming other factors remain constant.
Endava's organic revenue has seen a sequential decline for four consecutive quarters, including the forecast for the fourth quarter of 2024. The company anticipates this trend to continue through December 2024. Despite the flat growth projection for the fourth quarter, the company's shares are trading at 8 times the updated calendar year 2025 EBITDA forecast, based on an expected 10% growth in top-line revenue, compared to an 8% organic decline in calendar year 2024.
However, considering the flat organic growth guidance for the fourth quarter, comments about demand stabilization during the earnings call, and expected downward revisions to consensus estimates for fiscal years 2025 and 2026, KeyBanc believes that the current stock valuation is justified. The stock's valuation is consistent with that of its digital agency peers, trading at 12 times the projected calendar year 2024 EBITDA.
InvestingPro Insights
Endava PLC (NYSE:DAVA) has demonstrated a mix of financial stability and market challenges according to recent InvestingPro data. The company holds a market capitalization of $1.8 billion, with a P/E ratio that has adjusted to 21.57 in the last twelve months as of Q2 2024. This suggests that while the company's earnings valuation has become more attractive, investors are still weighing its future growth prospects cautiously, as reflected in a PEG ratio of -0.73.
Analysts keeping a close eye on Endava have revised their earnings upwards for the upcoming period, which could signal confidence in the company's ability to navigate the current market environment. Additionally, Endava's liquid assets have been reported to exceed short-term obligations, providing the company with a cushion to manage its financial responsibilities effectively.
Investors should note that Endava's stock has experienced significant price volatility, with a 53.56% drop over the last three months, which may present opportunities for those looking to buy at lower prices. The InvestingPro platform offers additional insights, including PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription for those interested in deepening their analysis. There are 9 more InvestingPro Tips available for Endava, which could help investors make more informed decisions.
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