Jefferies ups target price on Newgen Software to Rs 1,740; shares jump 4%

Shares of Newgen Software jumped 4 percent in early trade on December 4 as global brokerage Jefferies raised its target price on the technology services provider.

Jefferies maintained its ‘buy’ call, but increased the target to Rs 1,740 per share from Rs 1,275 apiece. “We are more confident on Newgen’s growth outlook and raise our revenue estimates by 2-3 percent and our EPS estimates by 2-4 percent. We expect Newgen to deliver a strong 26 percent EPS CAGR over FY24-26E,” said the global brokerage firm.

As of 9.45 am, shares of Newgen Software were trading at Rs 1,422.3, higher by 0.5 percent from the previous session’s closing price on the NSE.

The brokerage house noted that the management projected a strong growth outlook during the annual meeting. The strong growth will be driven by India and the Middle East, especially since India is witnessing strong traction.

Newgen Software noted that the deal sizes have increased by around 40 percent in the last year, driven by strong demand, more comprehensive solution offering and ability to tap into Tier-1 accounts.

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“Newgen has adopted a vertical specific point-solution based approach to enhance sales among existing and new customers,” said Jefferies. The company’s trade finance product has had nine large deal wins and provides strong growth visibility in the future.

The firm’s management added that Newgen’s gross margins could expand by 10-12 ppts once they reach a topline of $350 million. The potential margin improvement, however, will be reinvested to 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 percent range,” noted Jefferies.

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