Computacenter rally makes it to two-month high

The City is waking up to the value offered by this IT services firm, tipping it to revisit record highs. 

A record year in which Computacenter (LSE:CCC) "materially outperformed" expectations is a pretty impressive riposte to investors who drove shares in the IT infrastructure services firm down by a third since July.

Today's reassuring update helped the FTSE 250 index stock to surge 11%, but even now the company is only back where it started 2018 after a year dominated by the re-rating of the wider tech sector. That leaves Computacenter shares in an interesting position, given that it expects further financial progress in 2019.

Investec Securities points out the current valuation is at the low end of the group's historical price/earnings (PE) multiple range of 12x-16x, with analyst Julian Yates hopeful that shares can revisit the 1,600p record of last summer. Shares are currently at 1,112p.

He said:

"Reassurance that the spend backdrop is holding up and confidence towards the FY19 profit goals should support the stock. We believe it represents good value at these levels."

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

Whereas the 2018 financial year started with guidance from the company not to expect profits growth, the outturn for annual results in March is likely to show a rise of 10% or more.

This has been driven by revenues growth in the UK and Germany, as well as the better-than-expected performance of two businesses bought in the second half of the year. They added combined revenues of £220 million in the fourth quarter.

Computacenter is now up against challenging comparatives with the first half of 2018, although it continues to see "positive market momentum, driven by our customers' appetite to invest in digital technology to enhance their business".

This reflects the core technology drivers of digitisation, cloud, security and network capacity improvement. Computacenter advises organisations on their IT strategy, while also helping them to optimise performance, and manage their infrastructure. 

Its quarterly results can be distorted by year-on-year comparisons, as happened in October when shares slumped on the back of a 3% fall in Q3 revenues.

Our own companies analyst Richard Beddard pointed out in the aftermath of the warning that Computacenter was trading at a modest price for a company "that is not only growing, but growing more profitable".

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Admittedly, the company has stuttered at times, notably in 2005 when fierce competition from computer manufacturers selling direct meant it failed to earn rebates for meeting sales targets agreed with its suppliers.

In 2012, it found itself locked into three loss-making service contracts in Germany, while in 2014 it had to restructure its loss-making business in France.

Veteran CEO Mike Norris, who has seen more highs than lows during his 24 years at the helm, is also facing up to the threat of newer rivals such as Softcat (LSE:SCT), which only joined the stockmarket in 2015.

It recently overtook Computacenter in terms of market capitalisation, even though its annual revenues have only just broken £1 billion compared with £3.8 billion for Computacenter in 2017.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.