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Booming BPO Business Provides Opportunities for Trend Watching Investors
By: AllPennyStocks.com News
March 10, 2010
It’s an industry that’s taking the world by storm; formally called Business Process Outsourcing, or BPO for short, BPO is a form of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as, say, Coca Cola, that outsourced large segments of its supply chain. In the contemporary context, it is primarily used to refer to the outsourcing of services.
Where the money is to be made in the BPO industry is in far-off countries with huge consumer basis, such as India. Recent studies give the world’s largest democracy revenues of $10.9 billion U.S. from offshore BPO and $30 billion U.S. from Information Technology and total BPO. India thus has some 5-6% share of the total BPO Industry, but a commanding 63% share of the offshore component.
Other locations such as Eastern Europe, the Philippines, Morocco, Egypt and South Africa have emerged to take a share of the market. China – where the potential is also huge -- is also trying to grow from a very small base in this industry.
According to some experts, the global "addressable" BPO market is worth $122-154 billion U.S., most of it in retail banking, insurance, and travel/hospitality industries, with such sectors as the auto, telecoms, pharmaceutical, accounting and Human Resources catching up. What’s more, those same experts estimate that only 8% of that capacity was utilized as of 2006.
Even in recession-ravaged times, the BPO industry appears to come out shining. In a recent survey conducted by Houston-based IT advisor EquaTerra, there was a consensus that recent turmoil in the financial services industry could slow some outsourcing efforts in the short-term, and continue to negatively impact some providers. Longer term, however, the expectation is that outsourcing in this industry will grow as buyers seek to reduce operating costs, avoid investments into new systems and capabilities, shift focus to more strategic activities, and leverage their growing supply of skilled global resources.
This trend in financial services illustrates that outsourcing as an industry has become “recession-proof”, and that outsourcing is a tool buyers use in up markets to improve performance and in down markets to reduce costs and remain competitive. EquaTerra expects this trend to play out in other industries that are negatively impacted by economic and demographic factors such as aging workforces and weak local labour pools. These industries include consumer packaged goods, health-care, public sector and retail.
Some North American companies are taking the lead in the industry, among them, Colorado-based TeleTech Holdings Inc. (Nasdaq:TTEC), one of the largest global providers of BPO solutions, which was recognized in early March as one of the top 100 outsourcing providers by the International Association of Outsourcing Professionals® (IAOP).
In February, TTEC announced $1.2 billion U.S. in 2009 revenues and $1.12 U.S. in fully diluted earnings per share, a 41% Increase in Fourth Quarter 2009 EPS. Full Year 2009 cash flow from operations were $161 Million U.S. TTEC ended Q4 with $109 million U.S. in cash and no borrowings on its credit facility.
The company’s stock price dipped in March of last year (as everyone’s did, it seems) to a gulch of $8.30, before spreading its wings to a 52-week high of $20.95 a share in early January. Early in March of this year, the price was to within sight of $18.00.
One Tampa-based rival, Sykes Enterprises Inc. (Nasdaq:SYKE), provides its services through multiple communication channels encompassing phone, e-mail, web and chat. The company is active in the Americas, India, the Asia-Pacific region, Europe, the Middle East and Africa. SYKE provides an array of sophisticated customer contact management solutions to Fortune 1000 companies around the world, primarily in the communications, financial services, health-care, technology and transportation and leisure industries.
Recently, SYKE strengthened its hand with the acquisition of Pennsylvania-based rival ICT Group, a merger which creates a combined company with more than $1.2 billion U.S. in revenues, while greatly expanding the portfolio of clients with minimal client overlap. Company literature says the move also leverages global scale to pursue client acquisition opportunities that are larger and more complex in scope.
Q4 2009 revenues of $220.5 million increased by $19.7 million, or 9.8%, over the comparable quarter last year; on a constant currency basis, while revenues increased 4% comparably, driven by the communications, financial services, healthcare and transportation verticals. Cash flow from operations during the quarter was up comparably by approximately 14% to $27.8 million, with capital expenditures of $7.1 million
SYKE stock also dipped in the second week of March last year to a 52-week low of $13.50, before rocketing up to $26.91 a week or so before Christmas. It now dwells in the upper range, around $24.
For small-cap investors, anxious to ante up into the BPO game, Mississauga, Ontario-based SupportSave Solutions Inc. (OTCBB:SSVE) provides both onshore and off-shore BPO services to clients in the travel and hospitality, technology, financial services, retail and telecommunications industries. The company’s outsourcing center in the Philippines meets the needs of small and mid-sized businesses, offering a more affordable solution with services priced at a 65% to 75% discount compared to most Indian and other Filipino BPOs.
SSVE’s workers are supervised by American managers, who work on-site at the Company’s facilities in the Philippines. The combination of American managers and Philippine workers ensures service quality comparable to Western country standards at a much more affordable price.
Only five years old, SSVE shares the view that that the current economic slowdown actually presents growth opportunities since small and medium-sized businesses will be looking for ways to reduce costs through business process outsourcing. It also doesn’t think the benefits accruing to this industry should be limited to the Fortune 1000 companies, arguing small- and medium-sized companies should prosper, too. It’s an attitude that extends to the company’s would-be investors.
And if those folks need more convincing, all they have to do is take a look at revenues. In its most recent quarter, SSVE posted record earnings of $328,834 on revenues of $954,375. This compares with earnings of $13,381 on revenues of $393,648 for the same period last year. The company’s plans to do battle with its competitors are backed with cash, something that should make stock watchers of all stripes sit up and take notice.
Shares in the company ranged from a high of $1.35, achieved in late January, after plumbing a depth of 20 cents in mid-May for the last 52 weeks. What should tantalize small-cap investors even more is that the current price is $1.15.
The offshore BPO market is forecast to grow from $6.4 billion U.S. in 2005 to $42.9 billion U.S. in 2009. According to Gartner Research, the customer contact services, finance, accounting and human resources segments will experience the most growth. The current global economic slowdown may provide an impetus to offshore BPO market growth as companies search for ways to increase efficiency.
This exciting industry has enormous upside for investors thinking of adding one of these companies to their portfolios. Small-Cap investors might consider going the more economical route with a company such as SSVE, given its aggressive attitude, low stock price and equally impressive current and future revenue projections.
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The author has been compensated six thousand dollars by the Company for its efforts in presenting the SSVE profile on its web site and distributing it to its database of subscribers as well as other services. For a full SSVE profile, investors are encouraged to click here: http://www.allpennystocks.com/aps_us/company_spotlights/archives/ssve.asp.
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