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Softcat could benefit from UK fiscal stimulus

The software company bumped up its dividend by a fifth
March 17, 2020

Softcat (SCT) carried its strong momentum into its first half of FY2020, with operating profit up 20 per cent and the underlying margin rising 40 basis points to 36.2 per cent. Cash conversion pulled back slightly, but remained above 90 per cent for the third consecutive year. 

IC TIP: Hold at 955p

On top of this, the software company expanded its customer base by 4 per cent, while driving up the average gross profit per customer by 12 per cent. Management highlighted the step up in software sales, which account for nearly half of group revenue, and which were up by more than a quarter to £253m. The services division saw the highest rate of growth, up 38 per cent to £52.4m.

On coronavirus, management said the impact so far has been immaterial. But the UK chancellor’s recent Budget, which has upped spending on government infrastructure, could bolster Softcat’s relationship with the public sector – which currently accounts for just over a third of total revenue.

Broker Numis forecasts pre-tax profits of £90.2m and EPS of 36.4p for the year to 31 July 2020, up from £84.8m and 34.4p in its 2019 financial year. 

SOFTCAT (SCT)    
ORD PRICE:955pMARKET VALUE:£1.9bn
TOUCH:935-1,037p12-MONTH HIGH:1,277pLOW: 785p
DIVIDEND YIELD:1.4%PE RATIO:26
NET ASSET VALUE: 49pNET CASH:£41.8m*
Half-year to 31 JanTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201943434.013.94.5
202052440.516.75.4
% change+21+19+20+20
Ex-div:2 Apr   
Payment:15 May