Computacenter crash triggers wave of bargain hunting

A spectacular 2018 rally has now completely unwound, but at a 38% discount to the July peak, Graeme Evans finds bulls still backing a full recovery.

A Halloween fright for Computacenter investors has left shares in the IT services group trading below where they started 2018, adding to the market jitters that have also impacted fast-rising rival Softcat.

Computacenter's fortunes have reversed since shares hit a record high in July, with today's Q3 revenues performance causing shares to sink 13%, taking losses from that peak to 38%.

But with the group sticking to full-year guidance and blaming the 3% year-on-year decline in Q3 revenues on tough comparisons, one analyst said the current share price could be a "great buying opportunity".

Asking whether today's update was "trick or treat", Stifel analyst George O'Connor retained his 'buy' recommendation and his 1,872p target price. The FTSE 250 stock is currently valued with a 8.8x EV/earnings multiple.

He added: "We acknowledge that the uneven segmental results will cause nerves to twitch, as the cautious are frightened off. It is Halloween — what else would we expect."

O'Connor warned the volatile share price performance could continue until there is greater clarity on the trading backdrop. However, Computacenter shares have since bounced from a day low of 1,002p to 1,100p.

And O'Connor is encouraged by comments from the company that the core technology drivers of digitisation, cloud, security and network capacity improvement remain robust. Coupled with geographical expansion, this should position Computacenter well for future growth into 2019 and beyond.

The company is also supported by analysts at Investec Securities, whose 1,600p target is based on growth returning in Q4 and a forecast of moderate growth in 2019. UBS is more cautious, with a price of 1,285p.

Source: TradingView (*) Past performance is not a guide to future performance

Computacenter now has a market capitalisation of £1.4 billion, which is only marginally higher than the figure for rival Softcat. Parity was achieved earlier this year, even though the younger company's annual revenues have only just broken £1 billion compared with £3.8 billion for Computacenter in 2017.

In full-year results published a fortnight ago, Softcat said it was confident of achieving further profitable growth in 2019. Trading in the first ten weeks of the new financial year has been encouraging.

Despite this reassurance, Softcat shares have still fallen from their late August high of 887p to 646p after today's 6% decline.

Computacenter advises organisations on their IT strategy, while also helping them to optimise performance, and manage their infrastructure. 

Highlighting the tough comparatives, the company said revenues in the third quarter last year had been up by 20%.

It said: "While the overall growth rates in the third quarter in isolation are subdued compared to recent quarters, the quarter presented a more challenging comparison.

"Our expectation for the fourth quarter is for improved growth before acquisitions but not to the levels seen in the first half of the year."

*Horizontal lines on charts represent levels of previous technical support and resistance.  

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.