Recovery potential, predictions of a 50p special dividend and an unchallenging share rating make shares in Computacenter an alluring prospect ahead of full-year results that should confirm strong trading in the fourth quarter.
- Awash with cash
- Potential for special dividend
- German problems being rectified
- Recovery in France
- Big appetite for working capital
- Slowing trend in hardware sales
January's year-end update from the computer services provider was encouraging on the trading front and particularly impressive from the perspective of cash generation. Indeed, following the news, broker Panmure Gordon described Computacenter (CCC) as "awash with cash". And the bulging coffers have prompted the broker to conclude that 2013 could be one of the "infrequent" years when Computacenter pays a special dividend - the last time was through a B-share issue in 2006. The broker forecasts a 50p-a-share payout. Along with the regular dividend payment, that would mean an income yield of over 13 per cent for 2012.
The cash certainly seems to be there to support Panmure's argument, even taking into account the fact that Computacenter has to carry a lot of working capital to fund around £500m of receivables due from customers. At the end of 2012 net cash, excluding customer financing, had risen to £150m - a £13.2m increase in the year and up from £4.6m five years ago. And Panmure, which does not think Computacenter will find a suitable acquisition to spend the money on, forecasts that Computacenter will end 2013 with £90m net cash even after its predicted special dividend payment.
| Computacenter (CCC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 487p | MARKET VALUE: | £750m | |
| TOUCH: | 485-487p | 12-MONTH HIGH/LOW: | 494p | 285p |
| DIVIDEND YIELD: | 3.4% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 257p | NET CASH: | see text | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 2.50 | 48.42 | 25.7 | 11.0 |
| 2010 | 2.68 | 65.4 | 34.1 | 13.2 |
| 2011 | 2.85 | 72.1 | 41.0 | 15.0 |
| 2012* | 2.97 | 70.0 | 33.9 | 14.4 |
| 2013* | 3.07 | 83.0 | 41.5 | 16.6 |
| % change | +3 | +19 | +22 | +15 |
Normal market size: 900 Matched bargain trading Beta: 0.9 *JPMorgan Cazenove forecasts (profits not comparable with historic figures) | ||||
True, there is no certainty that a special dividend will be paid, but the fact that it is viewed as a real possibility highlights the attractions of a company with this level of cash. What's more, the liquid assets add to a broader recovery story. While 2012 will not be a great year for Computacenter - in fact, it will break the group's record of six years of double-digit profit growth - it is likely to prove just a hiccup. The company issued a profits warning last year due to higher-than-expected start-up costs of new German contracts. But trading in the region, which accounted for 43 per cent of 2011's sales, looks like it is getting back on track. In January management said "performance (in Germany) in the fourth quarter significantly improved". Further progress is hoped for in 2013.
It is a similar story in France, which accounts for 17 per cent of revenue, where challenges in 2012 were caused by an acquisition and business relocation. But these factors should help performance in 2013. Meanwhile, the UK business, which accounts for 39 per cent of sales, has been trading strongly and has a good pipeline of services work. Demand for the group's services is cyclical, so reviving economic confidence could help bolster performance this year. That said, long-term technological changes are likely to slow the sales of PCs, which is potentially a drag for the supply chain operation.
