Return on invested capital and financial value creation: Izertis as a success story
The IT consultancy firm Izertis is consolidating its position as a leader in the creation of financial value within the sector. This is according to the analysis published in El Confidencial by the economist Javier García, editor of Sintetia.com and renowned financial analyst and expert, who highlights the return on invested capital (ROIC) as the real driver of business growth, above the traditional EBITDA. The analysis "It's not EBITDA, it's ROIC! The case for value creation in the technology consulting sector" uses the technology consulting sector as an example, highlighting Izertis as a success story, which the author goes so far as to describe as a potential "financial value creation machine" for shareholders.
Since its IPO in 2019, Izertis has grown 26% year-on-year in turnover, but its great strength lies in its ability to turn every euro invested into financial value. Its expansion model combines organic growth and strategic acquisitions. Izertis has managed to incorporate companies with a return on invested capital double that of sector leaders such as Accenture or comparable companies in the BME Growth, such as Altia.
The report underlines that sustained value growth is a "complex challenge" that only a few companies manage to maintain. Efficient management, team integration and specialisation in high value-added niches are determining factors. In this scenario, Izertis stands out among analysts as a company with potential for high returns for shareholders.
Intangible capital plays a key role in IT consulting. Companies such as Accenture and Capgemini accumulate €27,600M in intangible assets, representing almost 7 out of every 10 euros of their long-term assets. However, monetising this capital is not immediate: it requires heavy investment in in-house R&D, integrating companies that are both highly knowledge-intensive and have growth potential, and facing sales cycles that are often long and complex.
In the case of Izertis and Altia, the two technology companies with the largest capitalisation in BME Growth, Javier García's analysis points out that intangible assets represent more than 85% of their long-term assets. In this case, Izertis' intangible assets exceed those of Altia by more than 66 million euros, which could be interpreted, he notes, as a drag on Izertis' immediate profitability. However, the market is not penalising it. "Why? Could Izertis be undervalued?" he asks.
ROIC that makes a difference
The answer lies in the real return on invested capital. According to the report, Izertis' EBITDA is five points higher than Altia's, but this does not fully explain its competitive advantage in creating financial value. Where the technology consultancy firm chaired by Pablo Martín does make a difference is in ROIC: the company, at the end of 2023, had some €61M in intangible assets accounted for as goodwill. In the case of Altia, €47.4m.
Izertis' goodwill - concentrated in six key companies - was built with companies with a return on invested capital that, on average, is around 60%, compared to Altia's 24%. This disparity in Izertis' ROIC compared to comparables such as Altia creates a similar gap to that between Accenture and Capgemini: although Accenture earns up to 3 times more EBITDA than Capgemini, in value, Accenture generates 8.6 times more financial value due to its better return per euro invested. The same is true for Izertis. Therefore, the typical indicator of EBITDA over sales, for example, is not able to capture the true difference in the ability to create value between companies, let alone high-growth companies such as those in BME Growth.
Izertis and Altia, explains Javier García, grew through acquisitions of companies with controlled debt. But Izertis has demonstrated a very relevant management ability by integrating companies with a return on invested capital that is double that of leading companies such as Accenture. And, at the same time, doing so while optimising costs. This has been possible because the companies acquired by Izertis were very well positioned in niche markets with high growth and very relevant differentiation. The purchase of the British company Assured Thought is a recent example, according to Javier García. Its return per euro invested is much higher than that of the sector leaders, and helps Izertis to reinforce its ability to generate positive cash flows in a sustainable manner.
Javier García's analysis concludes that Izertis could become a real "value creation machine" if it continues to combine its high ROIC with sales growth. This combination would explain its valuation differential with respect to other competitors and could attract the interest of investors, who are looking for companies with efficient capital management and a scalable business model.
If we take into account the current profitability and the potential of its goodwill, Izertis still has a valuation upside of more than 25%, according to the financial firm's study. This value would grow, in absolute terms, as the company's Strategic Plan is consolidated.
In conclusion, the analysis highlights that growth in sales, with returns above those of leading companies and expanding its positioning in high value-added niches is the most sustainable formula for creating financial value in companies. Izertis is consolidating its position in this process and its 2027 Strategic Plan is committed to return on invested capital as a driver of financial value creation for its shareholders and customers.
Read the full article at: No es el EBITDA, ¡es el ROIC! El caso de la creación de valor en el sector de la consultoría tecnológica