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WNS Holdings (WNS)

This tech company was just upgraded to “Strong buy” at Needham, has seen two increased EPS revisions in the past 30 days, and was chosen by Citi analysts as their “top global pick” in business process outsourcing.

WNS Holdings (WNS)

When most people think about business process outsourcing (BPO) based in India, they think of customer service phone banks in Mumbai. That business provided great growth a couple of decades ago, but it was quickly commoditized as competitors offered similar services.

But while WNS Holdings (WNS) does offer contact center services, it is also pushing BPO in unexpected directions. WNS is a global company that serves over 200 clients, offering specialized professional services like actuarial analysis to insurance companies. Fees from insurance companies contributed over a third of WNS’s revenue in the fiscal year that ended in March 2015, and management is looking to ramp up its team of in-house actuaries from under 200 now to over 500.

WNS Holdings is also offering innovative services to the travel and leisure industry, including end-to-end financial accounting and reporting, contingency-based revenue recovery and consulting services. Revenue from travel and leisure businesses made up about one-fifth of last year’s business.

All in all, the company has 28,000 employees in 10 countries and delivers more than 700 different BPO services from 37 business centers. With 85% of revenue coming from the U.K., the U.S. and Australia, WNS Holdings is primarily an English-based service provider. But because English is the lingua franca of international business, that’s not really a restriction. During the latest quarterly report, management identified China as a growth opportunity, as Chinese businesses come to recognize the value of handing off many high-overhead activities to outside providers.

WNS Holdings has enjoyed steady earnings growth since 2013. EPS jumped from $1.03 in fiscal 2013 to $1.37 in 2014 and $1.73 in 2015. The after-tax profit margin for the latest quarter was 16.9%.

WNS (the stock) got a big boost from the company’s July 16 (fiscal Q1 2016) earnings report. The stock surged over 8% as both revenue and earnings beat expectations. The stock also picked up an upgrade from one analyst.

WNS has been a steady long-term performer, breaking out of its doldrums in early 2013 when it was trading at 10 and running to 23 to start 2014. After a year-long consolidation, the stock broke out in January 2015 and stair-stepped its way to over 30 over the summer. Over the past month, it’s been consolidating those gains, while getting support from its rising 25-day moving average after a dip to 28.5 during the August 24 global washout of stocks.

WNS has done a good job of calmly ignoring the worst of recent volatility. The stock has also been gradually increasing its level of institutional support (105 mutual funds now own 30 million shares) as more whales recognize the steadiness and upside potential of this Indian back-office outsourcer.

WNS sports a very reasonable 17 P/E ratio and looks like a low-risk choice with the potential to outperform if its projections about the potential of China pans out. We advise taking a half a position in WNS anywhere under 30. We will buy a half position tomorrow. BUY A HALF.

Paul Goodwin, Cabot Emerging Markets Report,, 978-745-5532, September 10, 2015

Digest Editor: You’ll note the name change from Cabot China & Emerging Markets Report. As Editor Paul Goodwin told his subscribers, “This has nothing to do with China’s current economic imbroglio; rather, the new name is looking forward to finding the next country that takes off as China did 10 years ago.” Paul’s portfolio is intended to have ten equal-dollar positions. We recommend taking half a position, or 5% of the amount allocated to emerging markets exposure.