SDL transformation plan on track, Canaccord says

Canaccord Genuity bumped up its target price on SDL as the company increases the technology content of its offering, which it delivers as a managed service.

Early results from its transformation plan were already to be seen too, it said.

Research and development spend ran at 10% of sales in fiscal year 2016, anchoring the broker's investment thesis.

Together with a high level of intellectual property, that technology was helping SDL deliver global content by combining man and machine, Canaccord said.

"We believe this model brings significant competitive advantages," analyst Paul Morland said as he bumped his target on the stock from 540p to 565p, while sticking to his 'Buy' recommendation on the shares.

Only 19% of firms have a global content operating model, Canaccord said citing research from Forrester.

"Advantages for clients that adopt a global content operating model include: better brand consistency, higher experience consistency, better compliance, more content re-use, improved customer experience, faster time-to-market and lower costs."

Regarding the transformation plan, SDL had strengthened its management team, disposed of some non-core units, diversified its client base and made good progress on sales into premium sectors.

Sixty new enterprise customers had been secured with some 'world leading brands', Morland said.

"We believe that, in time, this business model will attract a higher rating for its more scalable revenues, higher gross margins and better visibility [...] and as the transformation plan progresses and growth accelerates, we see further possible upside."