Accenture: IT consultancy can weather spending slowdown

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A consultant is someone who borrows your watch to tell you the time, and then keeps it, so the joke goes. 

These days, it looks like fewer people want to lend out their watches. Demand for management and consulting services boomed during the pandemic as companies sought advice on how to revamp and adjust their businesses. But concerns about the economy and cost cutting across the tech and banking sectors have put the brakes on that spending.

Accenture is the latest to flag up the pressures on its industry. The company, which offers IT consulting and outsourcing services, reported a 4 per cent rise in revenue for the fiscal fourth quarter that ended in August.

But within this, the consulting business — which accounts for over half of group revenue — fell 2 per cent. The pullback in demand from the communications, media and tech industries (CMT) was particularly pronounced, with revenue there down 12 per cent.

Accenture’s forecast for fiscal 2024 did little to quell concerns about dwindling IT spending. Full-year adjusted earnings per share are expected to be in the range of $11.97 to $12.32, below estimates of $12.45. The midpoint of its revenue growth forecast of 2 per cent to 5 per cent also fell short of estimates.

That said, Accenture looks better placed than many of its rivals to weather the slowdown. Unlike standalone consultancies such as McKinsey or outsourcing firms like India’s Infosys, Accenture has transformed itself over the years into a one-stop shop for clients. This means it not only comes up with new IT strategies but it can also supply the coders, designers and marketing muscle to execute the plan. 

Its ability to provide comprehensive solutions has helped the company grow annual revenue from $28bn in 2012 to $61.6bn last year. Net income has more than doubled during this period.

Accenture’s heft is reflected in the share price. Despite a 5 per cent decline on Thursday, the stock remains up 14 per cent over the past 12 months, to give the company a market valuation of nearly $200bn. A push into generative services offers support for a valuation of 26 times forward earnings.