ii view: Computacenter recovery continues as shares surge again

Shares in this IT company have recovered over 20% since November and trade at prices not seen since September. Buy, sell, or hold?

Full-year trading update to 31 December

• Revenue up over 30%
• Expects adjusted profit ahead of management’s prior guidance

ii round-up:

IT equipment and solutions provider Computacenter (LSE:CCC) today raised its full-year profit expectation following a record fourth quarter despite battling tough comparatives following the boost from the pandemic.

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The FTSE 250 company expects to report its eighteenth consecutive year of adjusted earnings per share growth come its annual results due 20 March.

Computacenter shares rose by more than 8% in UK trading having come into this latest announcement down by a quarter over the last year. Fellow IT company Softcat (LSE:SCT) has fallen by a similar amount, while the FTSE 250 index is down by around 8%. 

Management expects revenue at the Hertfordshire headquartered company to grow by more than 30% over the year, aided by a small acquisition and the tailwind from a stronger dollar. 

Along with supplying equipment, Computacenter also advises organisations on IT strategy, implements the most appropriate technology, optimises performance, and manages its customers’ infrastructures. 

It pointed to strong demand across all countries for IT equipment, although the profit margin for its services business is impacted by inflationary pressures and a return to more normal costs following the passing of the pandemic despite strong sales. 

Accompanying 2023 outlook comments pointed to another year of progress, with the broader outlook remaining underpinned by its customers’ continued investment in technology. 

ii view:

Founded in 1981, Computacenter is today a substantial reseller business. Employing around 18,000 people globally, group customers have included the Met Office, William Hill, and Transport for London. 

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For investors, rising interest rates and elevated costs provide for a tough environment for its customers to spend on products and services. Tech titans such as Microsoft Corp (NASDAQ:MSFT) and Google owner Alphabet Inc Class A (NASDAQ:GOOGL) have been cutting jobs, while the boost from the pandemic in terms of both customer spending and its own costs has now passed.  

On the upside, demand from customers to date has proved robust. The company enjoys both customer sector and geographical diversification, spending on IT for many companies remains a priority, while a forecast dividend yield of around 3.5% is not to be ignored.  

On balance, and with the consensus analyst estimate of fair value standing at over £26 per share, grounds for longer term optimism appear to remain. 

Positives: 

• Product and customer sector diversity
• Continued bolt-on acquisitions

Negatives:

• IT sales are often volatile
• Currency moves can impact

The average rating of stock market analysts:

Buy