ii view: Computacenter is an optimist amid the gloom

Exposure to both IT product and services demand and a forecast yield of over 2%. Buy, sell or hold? 

Full-year trading update to 31 December

• Revenue up 23%
• Pre-tax profit expected to be slightly more than £250 million

ii round-up:

IT equipment and solutions provider Computacenter (LSE:CCC) expects full-year profit to be slightly above £250 million following a better-than-expected fourth quarter and despite both a stronger pound and supply shortages.

Revenue for the year to the end of December and including acquisitions are up by 23% year-over-year and by 27% on a currency adjusted basis. 

Computacenter shares rose by more than 2% in UK trading, but quickly fell in line with the wider stock market. The shares are now up by around 10% over the last year compared with an 8% gain for the FTSE 250 index. Fellow IT company Kainos Group (LSE:KNOS) is up around 13%. 

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 for this latest year came in at their best in 20 years.

Looking ahead, the strength of the fourth quarter just gone gives management encouragement as it enters 2022. The product order backlog currently sits at an all-time high, considerably higher than this time last year, aided by both earlier customer ordering given supply constraints and the significant underlying strength of the market. 

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Computacenter highlighted that it entered 2022 growing in multiple geographies and across both product and service arenas. 

Broker Morgan Stanley believes Computacenter is happy with full year 2022 profit estimates close to £260 million. That is likely to see analyst estimates being raise by around 4% to 5%.

Full-year results are scheduled for 16 March.

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, both Germany and the UK generate around one third of sales each. North America made up for a further 17% in its 2020 financial year, followed by France at around 12% and other international markets the balance. 

For investors, management's previous caution regarding any cooling of trading once the pandemic passes is worth remembering. Governments and corporations have also been making good and investing in their systems for staff to work from home under pandemic lockdowns and adjusted working practices. An estimated price-to-net asset value above the three-year average could also suggest the shares are not obviously cheap. 

But the pandemic has arguably accelerated the world’s move online, and both the public and private sectors are looking towards IT experts such as Computacenter to aid operations. In all, while the pandemic push could still ease, previous moves into North America and the virtual world of tomorrow look to support long-term prospects. 

Positives: 

• Product and customer sector diversity
• Forecast dividend yield of over 2%

Negatives:

• IT sales are often volatile
• Currency moves can impact

The average rating of stock market analysts:

Buy