Newgen Software share price rallies over 4% after Jefferies raises target

Newgen Software Technologies share price rallied over 4% on Monday after foreign brokerage firm Jefferies raised target price on the stock. Newgen Software shares gained as much as 4.16% to 1,474.00 apiece on the BSE.

Jefferies maintained a ‘Buy’ rating on Newgen Software Technologies and raised the target price to 1,740 per share, based on 35x PE, implying a PEG of 1.3x, from earlier 1,275.

The brokerage said it was more confident on Newgen’s growth outlook and raised its revenue estimates by 2-3% and EPS estimates by 2-4%.

“We expect Newgen to deliver a strong 26% EPS Cagr over FY24-26E,” Jefferies said.

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At its Annual event, Newgen Software’s management highlighted that growth outlook remains strong and recent bookings offer comfort on FY24 growth. The strong growth outlook is driven primarily by India and the Middle East – its core markets – while it continues to scale up in APAC. Management continues to step up efforts to gain traction in the US, especially among the mid-large tier banks.

India is witnessing strong traction and deal sizes have increased by 40% over the last year. Its trade finance product has had 9 large deal wins and provides strong growth visibility in the future.

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The company’s management highlighted that Newgen’s gross margins could expand by 10-12 ppts once they reach a topline of $350 million. However, management plans to re-invest most of the potential margin improvement either to scale up its marketing efforts or to invest in product development in order to accelerate growth.

“This should limit Ebitda margin expansion in the future. We thus expect our FY24-26 margins to remain around the 22% range,” Jefferies said.

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In its base case scenario, the brokerage expects the company to deliver revenue growth of 24% Cagr and EBITDA margin of 22% over FY24-26E.

The key catalyst for the stock would be traction in deal wins, including in the US, leading to higher-than-expected revenue growth, beat in margins, lower receivable/debtor days and favorable currency movement, according to Jefferies.

At 2:40 pm, Newgen Software Technologies shares were trading 1.20% higher at 1,432.00 apiece on the BSE.

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Published: 04 Dec 2023, 02:42 PM IST

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