TIXT’s recent quarter performance is quite disappointing, with today's drop in price, the company is expected to be trading at a single-digit earnings multiple. In its Q2 preliminary results, TIXT’s revenue growth is expected to be ~6%, ranging from $660M to $668M, missing estimates of $698M, and EPS of $0.16 is in line with estimates. The revenue growth declined 1% when excluding the recent acquisition of WillowTree, driven by weak business volume, this is not a good sign especially since the company operates in a field that is related to AI (secular growth). EPS also experienced a 50% decline compared to the previous year due to weak sales growth and higher interest expenses.
The company cited unexpected reductions in service demand from some of its larger clients, particularly within the technology vertical as being the primary driver for this weakness. It also experienced delays and lower-than-expected activity in converting opportunities into spend commitments, as clients address cost structures.
Having said that, the company expects revenue growth for the whole year of around 9%, adjusted EBITDA for 2023 of around $600M, and adjusted EPS is around $0.97, which we think is fairly attractive given its current market cap of $2.9B. Given a substantial decline in valuation, we think TIXT is a HOLD for now, we would neither add or sell to the position. We think fundamentally TIXT is still an above-average business, but we will need to keep a close eye on how the company executes going forward.