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Investing.com -- The recovery in the European IT services sector will likely remain gradual throughout 2025, Bank of America said in a note, citing its BofA European IT Services Indicator.
The indicator’s December reading showed a slight sequential improvement but remained in negative territory for the third consecutive month. The six-month moving average of the indicator has also been declining since October 2024.
“We see this deterioration as in line with the more cautious tone on shape of demand recovery from EU IT Services companies,” BofA said in a note.
As BofA’s indicator historically leads average organic revenue growth of its basket by three quarters, this likely implies that the IT spending environment is "only like to recover from H2 (second half) and at a very gradual pace," BofA analysts said.
This is especially relevant for EU IT services, which have higher exposure to pressured end markets like autos, aerospace, and the UK public sector.
BofA expects European IT services organic growth to contract by 2.7% in Q4 2024, down from -1.6% in Q3. This reflects ongoing macroeconomic challenges and cautious client spending patterns.
Among the companies analyzed, Capgemini SE (EPA:CAPP) and Sopra Steria Group SA (EPA:SOPR) are expected to post Q4 organic revenue declines of 2.3% and 0.9%, respectively, while Netcompany Group (CSE:NETCG) is projected to achieve 9.2% organic growth.
Alten SA (EPA:LTEN), meanwhile, is anticipated to see a sharp decline of 4.1% in Q4, attributed to pricing pressures and execution risks tied to offshoring.
BofA maintains a Buy rating on Capgemini, Sopra Steria, and Netcompany, emphasizing their relatively stronger positioning, while Alten, Bechtle AG (ETR:BC8G), and TietoEVRY Corp (HE:TIETO) are rated Underperform due to their heightened exposure to weak end markets and limited growth prospects.