Accenture PLC - Class A

In our opinion, most enterprises are going to need help making the transition from their old business models to new processes where AI is deeply embedded. And there is no company in the world that we believe is better positioned to help them with this pivot than Accenture, so we bought you some this quarter as the stock sits at multi-year lows. Fears over AI automating away the need for consultants have compressed Accenture’s valuation to a very attractive 9x earnings and 15% free cash flow yield. If our thesis is correct and AI creates a large wave of implementation opportunities, the shares should do extremely well.

Accenture is a current example of a high-quality company that is trading at a compelling valuation that offers potential significant upside with notable margin of safety characteristics proving downside protection. The stock has plummeted due to AI disruption fears despite maintaining solid fundamentals, zero debt, and healthy growth forecasts. Historically valued at ~20 times FCF, the stock now trades at a steep discount of roughly 7.3x. This double digit FCF yield gives management the option to repurchase 8% of its shares annually, which could meaningfully grow FCF per share ahead of Wall Street’s expectations. The situation is reminiscent of Microsoft in 2009, or Apple in 2015, when sentiment was extraordinarily negative yet fundamentals were strong. We believe Accenture looks extremely attractive.

Accenture is a current example of a high-quality company that is trading at a compelling valuation that offers potential significant upside with notable margin of safety characteristics proving downside protection. The stock has plummeted due to AI disruption fears despite maintaining solid fundamentals, zero debt, and healthy growth forecasts. Historically valued at ~20 times FCF, the stock now trades at a steep discount of roughly 7.3x. This double digit FCF yield gives management the option to repurchase 8% of its shares annually, which could meaningfully grow FCF per share ahead of Wall Street’s expectations. The situation is reminiscent of Microsoft in 2009, or Apple in 2015, when sentiment was extraordinarily negative yet fundamentals were strong.

Accenture, the world's largest IT services firm, is well-positioned to benefit from the ongoing AI transition due to its focus on consulting-led transformation work that combines business expertise with engineering. This unique positioning allows Accenture to earn a premium, reflected in its revenue per employee of approximately $90,000, which is nearly double that of India's largest outsourcing firms. The firm is expected to adapt and become an enabler of AI adoption rather than a victim of it, as it has little exposure to the commoditized application development that AI automates first. The market has undervalued Accenture, pricing it as if it were in terminal decline, while we believe it can thrive in the evolving landscape.

Accenture was one of the Fund’s top detractors in the quarter, with a significant decline of -36.69%. The company, along with others in the software and information services sector, faced challenges as investors grappled with the potential impact of AI on various business models. Despite the material trims made during the quarter to limit portfolio impact, we continue to believe that Accenture offers attractive upside from current prices, indicating a cautious outlook on its future performance.

Shares of global information technology services company Accenture underperformed after the company reported weaker-than-expected results, noting that near-term demand for its services remained subdued. However, we believe the company remains well positioned within the broader information technology ecosystem, and its valuation remains attractive relative to its long-term prospects.

Accenture Plc was acquired in the wake of the dot-com collapse and has been held successfully for more than a decade. The investment thesis was based on durable competitive advantages, high-quality management teams, and compelling valuations.

We acquired Accenture Plc (ACN) in the wake of the dot-com collapse and held it successfully for more than a decade. In both cases, we were attracted to durable competitive advantages, high-quality management teams and compelling valuations.

At Accenture, performance continues to be muted as clients eschew large discretionary projects and Department of Government Efficiency (“DOGE”) efforts weigh on its Public Service customer group. While we’ve long admired Accenture’s ability to retool its nearly 800,000 employee workforce to adapt and commercialize the latest technology with its large enterprise customer base, we sold our position in the quarter. The company has recently started to limit its disclosure of customer bookings related to AI technology and evolved its capital allocation framework to emphasize acquisitions outside its core business. In light of these developments and range of outcomes related to the impact of AI on its business, we elected to sell our investment.

Accenture is positioned to capitalize on the ongoing transformation driven by artificial intelligence, as it aims to offer large-scale AI transformations. The manager notes that many companies, including Accenture, view themselves as winners in this AI transformation, indicating confidence in their ability to enhance productivity and efficiency. This positions Accenture favorably in a market where share prices have drastically declined, suggesting it could emerge stronger than before.