Digital Transformation Star is Unlocking Value in Global IT Services

Endava (NYSE: DAVA), a U.K.-based IT services firm, is carving a niche in digital transformation, leveraging its expertise in financial services and agile delivery to drive growth. 

With nearly half of its revenue coming from payments and private equity clients like Mastercard (NYSE: MA), Endava’s land-and-expand strategy is paying off. Yet, its mid-$18s share price reflects a 56% discount to a $42 fair value, offering more than 100% upside. 

As it diversifies into retail and healthcare and expands in North America, Endava is poised to outpace peers like EPAM Systems (NYSE: EPAM). 

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Strategic Positioning and Competitive Edge

Endava’s focus on digital transformation, one of the fastest-growing IT services segments, sets it apart in a $1.1 trillion market where even giants like Accenture (NYSE: ACN) hold single-digit shares. Its agile, nearshore delivery model, with 50% of its workforce in Romania, ensures flexibility and client alignment, fostering deep relationships. 

Endava’s top 10 clients, including Mastercard (10% of revenue), account for a third of sales. With 90% of revenue coming from repeat clients, this reflects high switching costs and the inherent “stickiness” of its business model. Endava’s push into retail and healthcare, alongside North American growth (now 26% of revenue), diversifies its U.K.-heavy (33%) and financial services-centric (48%) base, targeting 20% organic revenue growth.

Financial Outlook and Valuation

Endava’s capital-light model, with minimal debt and a net cash position, supports financial stability. Fiscal 2024 revenue neared $1 billion, with a 20% adjusted profit-before-tax margin goal for 2025 despite a U.K. financial services slowdown. 

Trading at a forward P/E of 11x, DAVA is undervalued versus EPAM (18x). Forecasted low-teens revenue growth, fading to high-single digits, supports a $42 fair value, implying 128% upside. Limited operating leverage caps margin expansion, but bolt-on acquisitions could accelerate growth.

Bear Case

A U.K. or European economic slowdown could hit Endava’s 59% regional revenue base, particularly in financial services. Rising competition in digital transformation from Accenture or smaller players may pressure pricing. 

High employee attrition risks disrupting delivery, given labor is Endava’s primary cost. Client concentration, with 33% of revenue from top 10 clients, heightens exposure to project delays or AI-related decision-making lags.

Outlook and Price Target

Endava’s respectable moat, driven by switching costs and payments expertise, positions it to thrive in digital transformation. Its agile, nearshore model and diversification into new verticals and regions fuel 20% growth potential. At around $18.50, DAVA is a bargain with robust upside as it scales in North America and beyond.