IT Services: Beta, Multiples & WACC by Sector

← Swipe left or right to move through the sections →

What the numbers say.

The IT services sector has shifted a bit this month. It is valued about the same than a month ago: the median P/E held at 17.9x while companies moved both ways, the beta eased to 0.78, and the cost of capital stands at 8.2 %. The sector is calmer than in September: the choice of peers and settings moves the value less than it did.

P/E is the multiple to use

It is the tightest of the multiples the fundamentals explain, a dispersion of 15 % across the 20 companies, and the companies are comparable in ROE. EV/Sales spreads by 42 % because it carries the margin differences with it.

The beta to use: 5 years, monthly, 0.78

Among the stable settings it has the tightest spread across the 20 companies; R² 14 %, 17 of 20 betas significant, less liquid group (median bid-ask spread 0.38 %). It is the smartZebra standard setting. The settings alone move the median beta from 0.36 to 0.87.

The settings matter

Ten of the twenty companies move the P/E median by −7 % to +8 %, the settings by up to 69 %. IT services sits in the settings corner of the map.

Expected growth is not what the market pays for this month

The usual yardsticks for IT services: expected growth and EBIT margin. Expected growth: partly (rank correlation +0.55 with P/E (LTM)). EBIT margin: rejected (rank correlation +0.32 with EV/EBIT (NTM)).

P/E (LTM): median 18.0x → 17.9x

10 more expensive · 10 cheaper

Computacenter fell most (−18 %), Capgemini rose most (+22 %).

{"m":[["4iG","65.8","61.9","−6%"],["Kainos Group","25.7","26.5","+3%"],["Addnode Group","20.2","24.5","+21%"],["Asseco Poland","19.9","23.3","+17%"],["Netcompany Group","21.6","23.1","+7%"],["Bytes Technology Group","20.1","19.9","−1%"],["SoftwareOne","20.5","19.5","−5%"],["Softcat","22.3","19.2","−14%"],["Computacenter","22.8","18.6","−18%"],["GFT Technologies","16.9","18.1","+7%"],["Asseco South Eastern Europe","18.1","17.7","−2%"],["Reply","15.5","17.7","+14%"],["Bechtle","17.9","17.2","−4%"],["Nagarro","16.8","16.2","−4%"],["Atea","15.9","15.9","−1%"],["Alten","13.4","13.5","+1%"],["Sopra Steria Group","10.3","12.1","+18%"],["TietoEVRY","11.8","11.0","−7%"],["Wavestone","8.9","10.5","+18%"],["Capgemini","8.2","10.1","+22%"]],"b":[["SoftwareOne","1.43","1.37",57],["Alten","1.29","1.25",62],["Nagarro","1.21","1.17",49],["Computacenter","0.97","1.00",55],["Addnode Group","1.09","0.99",62],["Wavestone","0.98","0.98",24],["Atea","0.95","0.91",44],["Kainos Group","0.92","0.87",48],["Reply","0.87","0.81",40],["Softcat","0.77","0.81",55],["Bechtle","0.77","0.75",55],["Bytes Technology Group","0.74","0.71",56],["GFT Technologies","0.86","0.69",47],["Sopra Steria Group","0.71","0.68",50],["Capgemini","0.72","0.62",62],["TietoEVRY","0.44","0.43",65],["Netcompany Group","0.44","0.42",51],["Asseco Poland","0.24","0.23",47],["Asseco South Eastern Europe","0.13","0.12",27],["4iG","0.05","0.05",24]],"w":["Wavestone","4iG","Asseco South Eastern Europe","Reply","Atea"]}

Beta (5 years, monthly): median 0.82 → 0.78

17 of 20 significant

Each line runs from last month’s beta (light dot) to this month’s (blue dot), on the same beta setting.

Do the usual yardsticks hold this month?

The usual yardsticks for IT services, tested on the 20 companies this month.

Each extra point of expected growth adds about 0.6x to P/E.

Expected growth

Partly

Rank correlation +0.55 with P/E (LTM) · clear link from +0.60

EBIT margin

Rejected

Rank correlation +0.32 with EV/EBIT (NTM) · clear link from +0.60

Position on the sector map

This sector in gold, the other 19 sectors in blue. Dashed lines at 40 pp are illustrative.

Construction

Chemicals

Utilities

158

Telecom

Media

Travel & Leisure

Retail

Luxury

Consumer Goods

Logistics

Business Serv.

Aero & Defence

Electrical Eq.

Medtech

Pharma

IT Services

Semiconductors

Software

Automotive

Machinery

IT Services

How much the choices move the result

Beta and fit

R² (median)

14 %

Significant betas

17 of 20

Median bid-ask spread

0.38 %

Beta range across settings

0.36–0.87

What moves the value?

Change vs. prior month

±0 % vs. September

Peer impact on the median

−7 % to +8 %

Spread from peer choice (pp)

Spread from beta settings (pp)

Position on the sector map

Settings decide

Cost of capital

Cost of equity (CAPM)

“kE = rf + β · MRP”

rf = base rate, MRP = market risk premium, β = sector median beta.

WACC

“WACC = E/(D+E) · kE + D/(D+E) · kD · (1 − t)”

kD = base rate + credit spread; t = peer-average tax rate.

Tax rate

“t = average tax rate of the 20 peers”

Shown above as Tax rate (%).

Selection rules

Best-fit multiple

“lowest dispersion across the 20 companies”

The reference multiple is used only as a fallback.

Beta setting

“tightest spread among stable settings”

Replaces 5y monthly only if it passes the two-month rule.

Status

“|Δ value| ≤ 1 % and |Δ β| ≤ 0.03 → stable”

Up to ±5 % / ±0.06 → shifted a bit; beyond → shifted noticeably.

Scope

The 20 largest European listed companies by market value with core business in IT consulting, outsourcing, IT integration and resale; primary listing on a European exchange; banks, insurers, financial services and real estate are excluded.