Interactive Investor

ii view: Computacenter shares hit one-year high after results day rally

Sales and profit at this UK technology company comfortably beat analyst estimates. Buy, sell, or hold?

8th September 2023 11:59

by Keith Bowman from interactive investor

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First-half results to 30 June

  • Revenue up 27% to £3.58 billion
  • Adjusted pre-tax profit up 8.8% to £122 million
  • Adjusted earnings per share rose 5% to 73.5p per share
  • Interim dividend up up 2.3% to 22.6p per share
  • Cash held up 56% to £302 million

Chief executive Mike Norris said:

“We are pleased with our progress towards both our short-term financial objectives and our long-term aspirations. The investments we are making, predominantly through our profit and loss account to make Computacenter a more secure and competitive organisation, are progressing well and continue at pace.”

ii round-up:

IT equipment and solutions provider Computacenter (LSE:CCC) today detailed sales and profit which comfortably beat City forecasts, as it benefited from a return to more normal supply chains and ongoing technology investments by large corporate customers. 

Revenue rose by over a quarter to £3.58 billion, beating forecasts of £3.2 billion. That helped adjusted earnings rise 5% to 73.5p per share. The Hertfordshire headquartered company remains on track to achieve its 19th consecutive year of adjusted earnings per share growth.

Shares in the FTSE 250 company rose by more than 5% in early UK trading having come into this latest announcement up by 9% year-to-date. That’s similar to US equipment maker Xerox Holdings Corp (NASDAQ:XRX) and in contrast to one-fifth decline at fellow domestic IT firm Kainos Group (LSE:KNOS). The FTSE 250 index is down almost 3% so far in 2023. 

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

Revenue for technology equipment sales climbed by a third compared to a year ago to £2.77 billion, aided by networking and data centre demand. Sales for its services and consulting division rose by close to a tenth to £817 million, assisted by support for varying projects and the implementation of storage and backup services for government departments in Germany. 

Geographically, North America continued to lead sales, coming in at £1.47 billion, or 41% of overall revenues, followed by Germany at £974 million (27%), the UK at £686 million (19%), and France most of the balance.  

There's net cash on the balance sheet of £301 million and a 2.3% increase in the interim dividend to 22.6p per share.

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

ii view:

Started in 1981 and joining the stock market in 1998, Computacenter today employs around 20,000 people globally. A major reseller of both computing hardware and software, its major vendor partners include Microsoft Corp (NASDAQ:MSFT), Dell Technologies Inc Ordinary Shares - Class C (NYSE:DELL), Cisco Systems Inc (NASDAQ:CSCO), and International Business Machines Corp (NYSE:IBM). Group customers have included the Met Office, Transport for London, Kellogg Co (NYSE:K) and Volkswagen AG (XETRA:VOW).   

For investors, the challenging economic backdrop including rising interest rates makes for a tough environment for customers to spend on products and services. The boost from the pandemic in terms of both customer spending and its own temporarily reduced costs has now passed, while costs for businesses generally remain elevated. 

On the upside, digitalisation, IT efficiency and cyber security remain a core focus for corporations globally. The company enjoys both customer sector and geographic diversification, Computacenter itself is investing in its own operations, and a forecast dividend yield of around 3% is not to be overlooked.   

On balance, and despite risks, a consensus analyst estimate of fair value at over £26 per share suggests the latest rally is justified and that this UK IT company is worth consideration as part of a diversified portfolio.

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

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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