How Accenture's Business Lines Compare

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Accenture ( ACN ) is a major player in technology consulting where it competes with the likes of IBM ( IBM ), HP ( HPQ ) and Deloitte Consulting. Through a large number of skilled technology consultants, Accenture helps its clients to develop and implement customized IT strategies to gain maximum benefits from their IT investments.

We recently updated our Trefis price estimate for Accenture to $56.14 , which is slightly ahead of the market price. We estimate that the firm's three main business - outsourcing, technology consulting and management consulting - make up 30%, 24% and 26% of the firm's equity value respectively.

Accenture's Business Segment Comparison

In order to come up with the contribution of Accenture's 3 main business segments to the firm value we have compared the segments for drivers like headcount, headcount utilization, bill rate per hour and EBITDA margin.

Headcount

Headcount, which represents the total number of employees available in a particular division for handling projects, is one of the main drivers for Accenture's business segments. It determines the number of projects Accenture could work on at any given point in time.

Accenture's outsourcing business (including infrastructure, application and business process outsourcing) is by far the most important segment for the firm by headcount. With nearly 118K employees, the outsourcing segment makes up 62% of Accenture's total billable headcount.

The headcount of technology consulting and management consulting businesses on the other hand are significant lower making up only 14% and 9% respectively of the firm's total billable headcount. The total billable headcount represents the number of employees whose services are charged on an hourly basis from the clients and does not include 15K enterprise employees (involved in firm's internal processes).

Utilization

Utilization is the average ratio of headcount working on a project at a given time averaged over the year, i.e. number of employees being utilized versus the total headcount available to Accenture. The outsourcing business in general has had higher utilization rates then consulting.

In 2010, however, utilization was lowest for outsourcing business at 80% compared to technology consulting and management consulting which had a utilization of 84%. The lower utilization for outsourcing in 2010 actually accounts for significant hiring in the segment in 2010 which resulted in lower average billable hours per professional. We have kept our average billable hours per professional constant for the sake of consistency and accounted for the decrease by reducing the utilization for outsourcing division.

Going forward, we expect the utilization for the outsourcing business to be higher than that of consulting businesses.

Bill Rate per Hour

The bill rate per hour represents the average rate per hour that Accenture charges its clients for its consultants/professionals working on a project. The bill rate per hour has historically been highest for management consultants followed by technology consultants and outsourcing professionals as is also the case above.

We expect this trend to continue going forward.

EBITDA Margin

Historically, the EBITDA margin has been the highest for Accenture's management consulting segment followed technology consulting and outsourcing respectively. We expect this trend will continue in the future as well.

If we take the above in summary, outsourcing has the highest headcount and utilization (except in 2010) and is the most valuable business segment for Accenture despite its lower margin. Management consulting has a higher bill rate and EBITDA margin than technology consulting for Accenture despite having a lower headcount than making it the second most valuable.

See our full analysis of Accenture .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: ACN , HPQ , IBM

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