Computacenter back to normal trading patterns

Computacenter (CCC) previously highlighted that it faced a tough prior year comparator in the first half, as it returned to historically normal seasonal trading after “materially altered customer buying behaviours” during the pandemic. So it was no surprise that the technology services provider posted reduced profits in the period, with operating profits expected to be weighted to the second six months of the year.

Total revenue was up by almost a fifth, but there was good news and bad news for the top line. Sales soared by 48 per cent to surpass £1bn in the company’s biggest market, North America, as data centre customers proved a boon. Solid growth was also posted in the German and international markets, up by 7 per cent to £792mn and by 38 per cent to £108mn, respectively. But UK sales fell by 7 per cent to £654mn, hit by lower workplace and public sector demand.

What management called "extraordinary" North American growth came at the price of a hit to margins, with customers across the Atlantic coming with big volumes but “a much lower than average margin.” Overall gross margin fell by 250 basis points to 15 per cent, with the North American margin down by 483 basis points to 10 per cent.  A tougher cost environment, with overall cost of sales up by a fifth to £2.4bn, had its impact.

Investec analysts said that “rising cost inputs (inflation) and investment into the business will likely limit material profit upgrades, but we see our forecasts as well supported”. The shares trade at 15 times Investec’s forward earnings forecast for both this and next year, which looks undemanding given the broker’s expectation of continued growth in cash profits. And there is also now an improved outlook for supply chain challenges. Buy.

Last IC View: Buy, 2,718p, 16 Mar 2022