ii view: Computacenter already optimistic about 2025

Full-year trading update to 31 December

• Revenues down 2%
• Now expects adjusted pre-tax profit to be at the lower end of City forecasts of between £253.6 million and £266.5 million
• Adjusted net funds of around £480 million, up from £401 million in late June

Guidance:

• Expects to make progress in the full-year 2025, with earnings per share benefiting further from the impact of the share buyback.

ii round-up:

IT firm Computacenter (LSE:CCC) today pointed to 2024 profit expectations at the lower end of current City forecasts, but with order intake going into 2025 significantly above that seen a year earlier. 

Ongoing strategic investments and headwinds from a stronger pound are now expected to see adjusted pre-tax profit in 2024 toward the lower end of a £253.6-266.5 million range. That’s potentially down from £278 million in 2023. However, strong second-half order intake, particularly in North America, has left its committed customer order backlog significantly above that seen at the start of 2024. 

Shares in the FTSE 250 company rose 5% in UK trading having come into this latest news down by around a quarter over the last year. That’s similar to fellow UK IT companies Kainos Group (LSE:KNOS) and Bytes Technology Group Ordinary Shares (LSE:BYIT) and in contrast to a 6% gain for the FTSE 250 index itself.  

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Along with supplying IT equipment, Computacenter also advises organisations on IT strategy, implements the most appropriate technology, optimises performance, and manages customer infrastructure. 

A strong 2023 comparative and a more challenging market backdrop in 2024 are expected to see reported revenues for the year falling by 2%.

Strong customer collections and some materially early payments have however boosted adjusted group net cash held as of the year-end to £480 million, up from £401 million in late June. 

A previously announced £200 million share buyback was completed earlier than expected in late October. 

Accompanying management outlook comments flagged political instability in its German market and rising UK employer taxes, although with growth opportunities in North America remaining exciting and management expecting overall progress in 2025. 

Full-year results are scheduled for 18 March. 

ii view:

Set up in 1981, Computacenter today employs around 20,000 people, selling computer hardware equipment, software, and consulting services. Geographically, the USA generated its biggest slug of sales in 2023 at 39%. That was followed by Germany at 29%, the UK 18%, France 10% and the rest of the world the balance. Customers have included International Business Machines Corp (NYSE:IBM), Dell Technologies Inc Ordinary Shares - Class C (NYSE:DELL), Cisco Systems Inc (NASDAQ:CSCO), Microsoft Corp (NASDAQ:MSFT) and Transport for London.

For investors, pressured corporate spending budgets given heightened borrowing costs and an uncertain economic outlook have impacted business. The previous boost from the pandemic in terms of both customer requirements and Computacenter’s own temporarily reduced costs, have provided tough comparatives. Costs such as IT wages and increased UK government employee taxes cannot be overlooked, while customers are also likely to be building direct relationships with major makers such as Dell.

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On the upside, IT efficiency, digitalisation and cyber security remain key focuses for companies, organisations, and governments globally, with early steps for the AI era also now likely being made. Customer sector and geographical diversification exist including building a presence in India. Group net cash has risen, potentially providing scope for future share buybacks, while a forecast dividend yield of around 3% is not to be ignored.   

For now, and while spending on technology is regularly volatile and unpredictable, a consensus analyst estimate of fair value at over £28 per share is likely to keep investors interested. 

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