ii view: Computacenter shares gain. Here’s why

This IT solutions provider has flagged robust July and August trading. We assess prospects.

Unscheduled trading update to 31 August 2021

ii round-up:

IT equipment and solutions provider Computacenter (LSE:CCC) flagged robust trading in both July and August in an unscheduled trading update. 

Full-year adjusted profit is expected to be ahead of current analyst forecasts. Computacenter shares rose by more than 2% in UK trading, leaving them up by around 175% since pandemic lows in March 2020. Shares for paper to data health record transfer specialist Kainos Group (LSE:KNOS) are up by more than 220% in that time. 

In July, Computacenter flagged expectations for adjusted pre-tax profit for the first half to 30 June to be around 50% ahead of last year’s £72.4 million. But less than half of the analysts covering Computacenter had to date upgraded their forecast following the 21 July statement.

Governments and corporations have been making good and investing in their systems for staff to work from home under pandemic lockdowns and adjusted working practices.

Even with a flat performance in the second half of 2021 compared to the same period last year, Computacenter expects annual adjusted pre-tax profit to finish the year 10% above current market expectations. 

It posted adjusted pre-tax profit for the full-year 2020 of £200.5 million. Broker Morgan Stanley now expects current 2021 adjusted pre-tax profit of between £235 million and £240 million – 10% higher than the current £218 million consensus analyst forecast. 

Management noted that “Whilst visibility in our business is never perfect, given the momentum in the business, a substantial order backlog, the successful acquisitions and a strong forecast we will endeavour to beat last year's second half performance, not just match it.”

First-half results to 30 June are scheduled for 9 September.

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

In geographical terms, both Germany and the UK each generates around one-third of sales. 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 previous caution regarding any cooling of trading once the pandemic subsides is noteworthy. As is an estimated price/earnings ratio of over 20, above both the three- and 10-year averages, suggesting the shares are not obviously cheap. 

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

Positives: 

• Product and customer sector diversity
• Forecast dividend yield of 1.9%

Negatives:

• Elevated valuation
• IT sales are often volatile

The average rating of stock market analysts:

‘Buy’