Interactive Investor

ii view: growing Computacenter predicts more of the same in 2024

Shares in this UK technology company rallied strongly in 2023. We assess prospects for the year ahead.

24th January 2024 15:48

by Keith Bowman from interactive investor

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Full-year trading update to 31 December

  • Continues to expect to report record full-year adjusted pre-tax profit
  • Adjusted net cash of £450 million, up from £302 million in late June

Chief executive Mike Norris said:

“Looking further ahead, we are excited by the pace of innovation and growth in demand for technology. With our strength in Technology Sourcing, Professional Services and Managed Services, and focus on retaining and maximising customer relationships over the long term, we believe that we are well placed to deliver profitable growth and sustained cash generation.”

ii round-up:

IT equipment and solutions provider Computacenter (LSE:CCC) today flagged its ongoing expectations for record annual adjusted pre-tax profit, with year-end net cash exceeding management hopes. 

Revenue growth on a gross invoiced basis of 12% year-over-year had been driven by strong growth in technology sourcing and solid growth in services, with some or all of its net cash of £450 million potentially being returned to shareholders failing any suitable acquisitions. 

Shares in the FTSE 250 company rose around 1% in UK trading having come into this latest announcement up by close to half in 2023. That’s similar to accounting software provider Sage Group (The) (LSE:SGE) and comfortably ahead of a 4% rise for the FTSE 250 index itself. 

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

Accompanying management outlook comments pointed to expected further progress during 2024 with a more challenging comparison in the first half of the year than in the second half. Ongoing growth in service sales is expected to more than counter a normalising in technology sourcing volumes. 

Broker UBS reiterated its ‘buy’ rating on the shares, highlighting potential for a return of more than £300 million to shareholders failing any attractive M&A. 

Full-year results are scheduled for 20 March. 

ii view:

Headquartered in Hatfield, Hertfordshire and joining 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 the Met Office, Transport for London, WK Kellogg Co (NYSE:KLG), and Volkswagen AG (XETRA:VOW). Its key sales regions are North America, Germany, the UK, and France. 

For investors, pressured corporate spending budgets given heightened borrowing costs and an uncertain economic outlook should not be overlooked. The boost from the pandemic in terms of both customer requirements and its own temporarily reduced costs has now passed, while around four-fifths of its revenue is generated overseas and therefore subject to currency movements.  

More favourably, digitalisation, IT efficiency and cyber security remain core focuses for companies, organisations, and governments globally. Both customer sector and geographical diversification are enjoyed, Computacenter itself is investing in its own operations, while an estimated future dividend yield of around 2.5% is not to be ignored.   

For now, and while spending on technology is regularly volatile and unpredictable, this FTSE 250 company is likely to remain high up on the list for investors seeking a UK listed tech business.   

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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