Endava's Resilience and Growth Potential Supports Buy Rating Amid Market Challenges

William Blair analyst Maggie Nolan has maintained a Buy rating for Endava (DAVA) stock due to strong performance in its banking and capital markets segment, robust demand for modernization of core systems, and conservative guidance approach. The company's healthcare segment has experienced triple-digit growth, and management's optimistic outlook on client sentiment suggests potential for growth despite challenges in mobility and payments verticals.

Endava (DAVA), a leading digital transformation and technology services company, participated in the Bank of America Global Technology Conference 2025, offering insights into its strategic shifts and market outlook. The company highlighted both the challenges and opportunities it faces in the evolving technological landscape, particularly in AI integration and modernization of legacy systems.

AI Challenges and Opportunities

Endava is navigating significant hurdles in AI implementation, such as hallucination, scalability, and regulatory compliance. However, the company remains optimistic about increasing deal sizes and volumes, especially in the banking and capital markets sector. Endava aims to become "AI native," integrating AI into daily operations for all employees. The company has revised its guidance approach to emphasize the business run rate, treating large deals as incremental.

Financial Performance

Payments performance has decreased by approximately 50% from peak levels, influenced by spending cuts from major clients. Endava has pulled back its guidance in Q4 due to challenges in predicting deal signings. Future guidance will focus on the business run rate, with large deals expected to provide significant revenue increases. Operational updates indicate that Endava is addressing AI implementation challenges and enhancing its core modernization tools.

Sector Performance

Banking and capital markets are expected to continue strong performance, while mobility is anticipated to recover. The healthcare sector is gaining traction with core modernization capabilities. APAC clients are being serviced through nearshore capabilities in Malaysia and Vietnam.

Future Outlook

Endava's strength in banking and capital markets is complemented by steady growth in insurance. The company is working to ensure productivity gains from AI are converted into a backlog, making it more cost-effective for clients to build new systems. The mobility sector is expected to recover, potentially benefiting from big deals in the automotive space.

Conclusion

Endava's strategic focus on AI integration and modernization of legacy systems positions it well for future growth, despite current challenges in mobility and payments verticals. The company's conservative guidance approach and robust financial performance in key segments like banking and capital markets suggest a promising outlook.

References:
[1] https://www.investing.com/news/transcripts/endava-at-bank-of-america-conference-ai-challenges-and-opportunities-93CH-4081898