ii view: Computacenter boom helped by US growth

A pandemic tailwind and exposure to data centre equipment demand. Buy, sell, or hold?

Full-year trading update to 31 December

• Revenue up 23.6% to £6.73 billion
• Adjusted profit before tax up 28% to £256 million
• Final dividend of 49.4p per share
• Total dividend per share up 32% to 66.3p per share
• Cash held down 12% to £273 million

Chief executive Mike Norris said:

"The more than doubling of profits that Computacenter has achieved over the last three years has been the result of deliberate actions that we have previously taken to enable growth. Our acquisitions in North America and Western Europe have materially increased our total addressable market. The organic investments we have made, including the expansion of our sales force, recruiting technical expertise and investing in systems to enhance our productivity, have been substantial.”

ii round-up:

IT equipment and solutions provider Computacenter (LSE:CCC) today reported a more than one-quarter increase in profit as demand from both industrial and data centre customers expanded and costs from Covid provisions fell. 

A similar increase in sales to £6.73 billion helped adjusted pre-tax profit rise to £256 million, underpinning a final dividend of 49.4p per share, making for a 32% improvement in the total full year dividend to 66.3p. 

Computacenter shares rose by more than 5% in UK trading, leaving them up close to a fifth over the last year. That compares to an 5% loss for the FTSE 250 index. and declines for fellow IT companies Kainos Group (LSE:KNOS) and Micro Focus International (LSE:MCRO) of 2% and 23% respectively. 

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Along with supplying equipment, Computacenter also advises organisations on IT strategy, implements the most appropriate technology, optimises performance, and manages its customers’ infrastructures. Service revenues rose 15% to £1.45 billion, their best in 20 years.

Growth for its North American business led the way. Sales including a previous acquisition more than doubled, while sales excluding acquisition grew by 28%. The performance leaves the North American division as the company's largest equipment sourcing business, with sales of £1.92 billion ($2.5 billion). That’s up from almost nothing in 2018.

Looking forward, management believes demand drivers for Computacenter remain strong, although growth is expected to be weighted toward the second half. 

ii view:

Formed in 1981 and headquartered in Hatfield, Computacenter is today a substantial reseller business with the largest service capability of any reseller in the world. In geographical terms, the UK, Germany and North America generate nearly 90% of sales, with France accounting for most of the balance. 

For investors, management’s highlighting of tough first-half comparatives during 2022 should not be ignored. Costs broadly for the industry are rising and some cooling in demand could now be seen as the pandemic arguably passes its peak. Governments and corporations have been making good and investing in their systems for staff to work from home during pandemic lockdowns and adjusted working practices.

On the upside, Computacenter's prior move into North America is bearing fruit. Exposure to data centre customers and growth in cloud data is feeding into its performance, while both public and private sectors are looking towards IT experts such as Computacenter to assist operations. In all, and while tough comparatives inject some caution, a consensus analyst estimated fair price target of close to £33 per share suggests room for further optimism. 

Positives: 

• Product and customer sector diversity
• Forecast dividend yield of over 2% (not guaranteed)

Negatives:

• IT sales are often volatile
• Currency moves can impact

The average rating of stock market analysts:

Buy