ii view: AI excitement helps fuel Computacenter rally

Full-year results to 31 December

• Currency adjusted revenue up 3% to £6.96 billion
• Adjusted pre-tax profit down 6.3% to £254 million
• Adjusted net funds held up 5% to £482 million
• Final dividend of 47.4p per share
• Total dividend for 2024 up 1% to 70.7p per share

Guidance:

• Expects to make progress in 2025 with earnings per share benefiting from the impact of its previous share buyback

Chief executive Mike Norris said:

"We are well-placed for progress in 2025, entering the year with a strong order backlog across all regions, an exciting opportunity set and a continued focus on helping our customers realise the transformative benefits of IT."         

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ii round-up:

IT firm Computacenter (LSE:CCC) today flagged the most profitable second-half period in its history, with the order backlog going into 2025 significantly up from the level in late June. 

Second-half revenues rose 18% compared to a 12% decline in the first half of the financial year to leave total currency adjusted sales for 2024 up 3% at £6.96 billion. Adjusted pre-tax profit fell 6% to £254 million, although the City expects a rise to £270 million in 2025. 

Shares in the FTSE 250 company rose 10% in UK trading having come into these latest results up by a similar amount year-to-date. That’s ahead of a 2% rise for the FTSE 250 index itself over that time. Rival Bytes Technology Group Ordinary Shares (LSE:BYIT) was down 2% so far this year until today's announcement.

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. 

Demand in North America led the way, driven by sales of AI related infrastructure from hyperscale customers such as datacentre operators. Currency adjusted invoiced income climbed 9% to £3.8 billion, taking adjusted operating profit up 14% to £72 million.  

Computacenter’s overall order backlog as of 31 December 2024 was up 116% year-over-year, or 35% from late June, also aided by a return to more normal customer demand following volatile comparatives coming out of the pandemic. 

Group adjusted cash held rose 5% to £482 million. A final dividend of 47.4p per share, payable to eligible shareholders on 4 July, takes the total payment for 2024 up 1% to 70.7p per share. A previously announced £200 million share buyback programme completed in late October. 

Broker UBS reiterated its ‘buy’ rating on the shares post the results. Computacenter’s AGM is due to be held on 15 May.  

ii view:

Started in 1981, Computacenter today employs more than 20,000 people, selling computer hardware equipment, software, and consulting services. Geographically, the USA generated its biggest slug of sales in 2024 at 44%. That was followed by Germany at 23%, the UK 21% and Europe and the Rest of the world the balance of 12%. Group customers do or have included Microsoft Corp (NASDAQ:MSFT), International Business Machines Corp (NYSE:IBM), Dell Technologies Inc Ordinary Shares - Class C (NYSE:DELL), Cisco Systems Inc (NASDAQ:CSCO), and Transport for London.

For investors, management outlook comments flag the uncertain macroeconomic and political environment. UK gross invoiced income fell 7% over the year. Costs such as IT wages and increased UK government employee taxes cannot be overlooked, while group customers are also likely to be building direct relationships with major makers such as Dell.  

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More favourably, AI requirements, IT efficiency, digitalisation and cybersecurity all remain key focuses for companies, organisations, and governments globally. Customer sector and geographical diversification exist including approximately 1,500 staff servicing customers in India. Group net cash held has risen, potentially providing scope for future share buybacks.  Nearly £1 billion has been returned to shareholders since 2013 and the shares now offer a forecast dividend yield of almost 3%. 

In all, and while spending on technology is regularly volatile and unpredictable, a consensus analyst estimate of fair value close to £28 per share should keep investors interested. 

Positives: 

• Product and customer sector diversity
• Exposure to potential AI requirements

Negatives:

• IT sales are often volatile
• Currency moves can impact

The average rating of stock market analysts:

Buy