ii view: Computacenter shares stumble on results day

Full-year results to 31 December

• Revenue up 7% to £6.9 billion
• Adjusted pre-tax profit up 5% to £278 million 
• Adjusted earnings per share up 3% to 175p 
• Final dividend of 47.4p per share
• Total 2023 dividend up 3% to 70p per share 
• Net cash of £344 million, up from £117 million

Chief executive Mike Norris said:

“We managed an uncertain macroeconomic backdrop and inflationary pressures effectively, reduced our inventory significantly, resulting in a record net cash position. 

“Overall we expect 2024 to be another year of progress with growth weighted to the second half, while continuing to invest for future growth.”

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ii round-up:

IT equipment and solutions provider Computacenter (LSE:CCC) today detailed a 19th consecutive year of adjusted earnings growth, but with revenues falling shy of City expectations. 

Adjusted 2023 earnings rose 3% from 2022 to 175p per share, assisted by early year corporate customer upgrades to assist staff to work from home. Second-half sales however slowed rapidly and even turned negative in the UK as upgrade work completed. 

Shares in the FTSE 250 company fell 7% in UK trading having come into this latest news up by almost a half over the last year. That’s similar to IT services company Bytes Technology Group Ordinary Shares (LSE:BYIT) and comfortably ahead of a 5% rise for the FTSE 250 index. 

As well as supplying IT equipment, Computacenter also advises organisations on IT strategy, implements the most appropriate technology, optimises performance, and manages its customers’ infrastructure. 

Full-year 2023 revenue growth of 7% to £6.9 billion contrasted with first half growth of 27%. Despite continued, albeit slower, second half sales growth for major markets Germany and North America, UK sales fell 4% in the second half compared to a 5% gain in the first six months of the financial year.   

Management says tough pandemic comparatives will further weigh in the first half of 2024 but with a pick-up in sales expected in the second half. 

Beyond 2024, Computacenter flagged likely longer-term demand for equipment upgrades as customers position for AI or Artificial Intelligence.

Broker UBS reiterated its ‘buy’ rating on the shares post the results, highlighting an estimated fair value price of £32 per share. 

ii view:

Started in 1981 and coming to the stock market in 1998, Computacenter today employs over 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). Group customers have included WK Kellogg Co (NYSE:KLG), Yorkshire Building Society, Transport for London, and Coca-Cola Co (NYSE:KO)owned Costa Coffee. Key sales regions include 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 provides 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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On the upside, digitalisation, IT efficiency and cyber security remain core focuses for companies, organisations, and governments globally, with moves into the AI era now likely being contemplated. There's also diversification across both customer sector and geography including growing Computacenter staff numbers in India. Group net cash could provide funds for bolt-on acquisitions, while a forecast dividend yield of around 2.5% is not to be ignored.   

Spending on technology is regularly volatile and unpredictable, and a third failure to make a move above 3,000p stick suggests this level remains a psychological barrier. However, the business is doing well and will likely remain a consideration for investors seeking a UK listed tech company for their 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