ii view: Computacenter profits fall dumps shares to year low

First-half results to 30 June

• Revenue down 12% to £3.1 billion
• Adjusted pre-tax profit down 27% to £87 million
• Interim dividend up 3.1% to 23.3p per share
• Adjusted net funds up 41% to £401 million

Chief executive Mike Norris said:

"We continue to invest in new systems and tools to ensure Computacenter's continued success while maintaining our strong track record of delivering shareholder returns.”

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ii round-up:

IT firm Computacenter (LSE:CCC) today detailed results broadly matching its recent trading update, with client demand normalising following strong prior year technology sourcing volumes and UK customers staying cautious. 

First-half revenue fell 12% to £3.1 billion, taking adjusted profit down 27% to £87 million, although the seller of IT equipment flagged the addition of seven new podium customers during the period, including two new US hyperscale clients.

Shares in the FTSE 250 company, and following a major US tech sell-off late last week, dropped 4% in UK trading to their lowest in exactly one year, having come into these latest results up by a similar amount over the past 12 months. Shares in rival IT firm Kainos Group (LSE:KNOS) are down by close to a third over that the time, while the FTSE 250 index is up 11%. 

As well as supplying IT equipment, Computacenter also advises organisations on IT strategy, implements the most appropriate technology, optimises performance, and manages customer infrastructures

Accompanying management outlook comments point to an encouraging start to the current third quarter. Management expects strong momentum in the second half, supported by its committed product order backlog and wider pipeline of opportunities. 

An interim dividend of 23.3p per share is up from last year's 22.6p payment and accompanies an ongoing £200 million share buyback programme. 

Podium, or major customers, now total 190 versus 183 at the 2023 year-end. Group investment to improve capabilities and enhance productivity totalled £17.6 million during the period, up from £12 million in the first half of 2023. 

A third-quarter trading update is scheduled for 30 October. 

ii view:

Founded in 1981, Computacenter today employs around 20,000 people globally. A major reseller of both computing hardware and software, its vendor partners include International Business Machines Corp (NYSE:IBM), Dell Technologies Inc Ordinary Shares - Class C (NYSE:DELL), Cisco Systems Inc (NASDAQ:CSCO), and Microsoft Corp (NASDAQ:MSFT) customers have included Kellogg’s, Yorkshire Building Society, Transport for London, and Coca Cola owned Costa Coffee. Key sales regions focus on North America, Germany, the UK, and France. 

For investors, the previous boost from the pandemic in terms of both customer requirements and its own temporarily reduced costs, now provide tough comparatives. Pressured corporate spending budgets given heightened borrowing costs and an uncertain economic outlook should not be forgotten. Staff wage pressures across the IT sector persist, while vendor partners are also likely to be busy building direct relationships with major corporations. 

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To the upside, digitalisation, IT efficiency and cyber security remain core focuses for companies, organisations, and governments globally, with use of some level of AI increasingly common. Both customer sector and geographical diversification exist, including growing Computacenter staff numbers in India. Group net cash points to a robust balance sheet and could provide firepower for bolt-on acquisitions, while a forecast dividend yield of over 2.5% is not to be ignored. 

Computacenter is a highly regarded UK technology business with a solid track record. However, spending on corporate tech can be volatile and unpredictable, and a decline in profit will not have helped its cause. Investors with a strong appetite for risk might be tempted to pick up stock at historically low prices, but those with a more cautious approach will likely demand evidence that this is a short-term issue which can be resolved.

Positives: 

• Product and customer sector diversity
• Own investment programme

Negatives:

• IT sales are often volatile
• Currency moves can impact

The average rating of stock market analysts:

Buy