Computacenter at a discount to peers

Internet service provider Computacenter (CCC) is agnostic as to the type of software businesses are using, as long as they are trying to improve their digital capabilities.

Computacenter helps its customers source and manage their digital infrastructure, which might include choosing a cloud service provider and the specific software to run their business on. The pandemic provided a tailwind as companies had to rapidly digitise and the hope now is AI will create more secular growth.

In the year to December, technology sourcing revenue increased 7.9 per cent to £5.3bn while gross profit rose 10.2 per cent to £1.04bn. Technology sourcing revenue was particularly strong during the first half of the year, driven by demand for data centre services. However, the company has warned that things have slowed in the second half of the year, as it saw more “normalised activity levels”.

This more subdued growth expectations can be seen in the backlog which is down 56.3 per cent on a gross invoiced income basis from last year.

The company is forecasting that growth will be weighted towards the second half of the year, which is rarely a good sign. It seems if this growth is going to come from anywhere it will be the US, where revenue rose 10.4 per cent to £2.6bn. This more than offset the 4.6 per cent contraction in the UK, where Computacenter criticised a slowing economic backdrop.

Broker Investec is expecting EPS to rise to 176p in 2024, up from 173p this year which would give a 2024 PE ratio of 16. This is cheaper than peers Softcat (SCT) and Bytes Technology (BYIT) that trade in the mid-20s. Computacenter’s growth will slow from the pandemic heights but digital transformation is still going to be required. Stick to buy.

Last IC View: Buy, 2,442p, 08 Sep 2023