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Ackman’s Short Slide-Deck On ADP “the broader conclusions are inescapable”

By VWArticles. Originally published at ValueWalk.

Ackman’s latest short presentation of 168 pages on why ADP needs him to save the company can be found below

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An Overview of Pershing Square’s Analysis


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Our analysis of the Company’s performance and the potential areas for improvement on the pages that follow are based on public information and extensive due diligence completed, which includes:


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85+ consultations with industry executives, including former senior employees of ADP and its competitors in service, implementation, sales, technology, product development, and finance, and with customers and industry consultants


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Extremely consistent themes and takeaways


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We acknowledge that we do not have perfect information, including access to detailed, inside information


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ADP’s limited and reduced disclosure has made this analysis more difficult and may cause some of our estimates to be imprecise or off slightly in magnitude


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Directionally, and on the whole, we think our analysis is correct and the broader conclusions are inescapable

An Overview of Pershing Square’s Analysis (cont’d.)


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This presentation contains statements reflecting Pershing Square’s opinions and beliefs with respect to ADP and its business, based on Pershing Square’s research, analysis, and experience.


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All such statements are made to Pershing Square’s opinion and belief, whether or not those statements are expressly so qualified.


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The statements are based on our research of public materials filed by ADP and our research conducted anonymously through “Expert Network” firms. In multiple places throughout this presentation, we reference quotes from former ADP executives that provide qualitative commentary that is helpful to contextualize our research.


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Consistent with our internal firm compliance policies, we spoke with executives who have been at least 18 months removed from ADP. While we have included only select commentary from these executives, we believe this commentary is representative of, and consistent with, our broader research.

ADP’s Historical Success Has Made it a Lethargic and Inefficient Sleeping Giant


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ADP has enjoyed a decades-long, leading market position and a strong historical track record


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Historical dominance in payroll. Throughout the 2000s, ADP built out its “Beyond Payroll” offering, mostly through product acquisitions


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Over the last decade or so, the Company began building, assembling, and migrating clients to new HCM product platforms which were intended to integrate payroll and beyond payroll applications in a Cloud-based, SaaS delivery model


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Recent favorable market trends (ACA) and corporate events (Dealer Services spinoff plus leverage) have driven satisfactory overall results for ADP, but these tailwinds are fading

We Will Demonstrate That if ADP is Managed Optimally:


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Employer Services can increase its actual operating margins (excluding float income) by 1,500 to 2,000 basis points by FY 2022


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Assuming a 1,700 basis point expansion in ES, ADP’s overall EBIT margins can increase from 20% in FY 2017 to ~32% by FY 2022


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FYE 2022 EPS can increase from $5.90 under the status quo to $8.70, a ~47% improvement


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ADP’s value can increase to $221 – $255 per share, at 24x – 28x earnings, (including dividends) by June 2021, a total return of 101% – 132% in less than four years


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All of the above can be achieved with no changes in the credit rating, capital structure, dividend policy, or client funds investment strategy

Continues below

ADP-Pershing-Square-8.17.2017

The post Ackman’s Short Slide-Deck On ADP “the broader conclusions are inescapable” appeared first on ValueWalk.

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