Computacenter rides the IT surge

The group’s pre-tax profits in the first half of 2020, one of the most volatile periods in the market for years, are expected not just to meet but to leap ahead of the figures for the same period in 2019. An increase in demand for IT equipment and for services that support home working bolstered trading – and it was not just turnover that grew, management also expects to improve profitability in the remainder of this year. These first-half figures will follow a bumper full year in 2019, when sales broke through the £5bn barrier, led by a 20 per cent hike in the technology sourcing segment, which makes up three-quarters of total turnover. 

Computacenter provides IT infrastructure and services to both corporate and public sector customers in Germany (38.5 per cent of sales), the UK (31.3 per cent), the US (15.3 per cent) and France (11.1 per cent). Its client mix is enviable: the company’s large corporate clients include a number of deep-pocketed European banks, such as UBS. And its public sector clients are dependable – take the group’s long-standing relationships with the Department of Education and the NHS in the UK.

Most of Computacenter’s business is based on technology sourcing, which has been boosted by an almost market-wide surge in demand for IT equipment. But the group’s managed and professional services are also poised for growth. The transition from Microsoft’s Windows 7 operating system to Windows 10 is ongoing, since the US technology company prolonged its customer service for the older generation software. But this service finally expired in January, which means that a number of customers are still facing the big switch – and Computacenter says it is at the ready.

The group’s business model has also been consistently cash-generative, with an average conversion rate of 92 per cent of operating profits into cash over the past five years. That is complemented by a healthy 23.5 per cent return on capital employed in the past 12 months, which signals how effectively the group uses its capital. 

However, Computacenter’s mainly reseller-based model means there are low barriers for entry into the market for its potential competitors. The risk that new entrants that could snatch market share is ever-present. Even so, as lockdown presses on, many customers do not want to risk the chance of operational disruption by switching suppliers. And, while it may be true that clients might shy away from committing to big-ticket technology infrastructure projects, it may also be that virus-induced demand for Computacenter's services will extend into next year. Some customers that are still recovering from the fallout of the pandemic will eventually need to fork out for new IT kit in order to curb the risk of a similar, or repeat, crisis in the future. 

Indeed, although trading has evidently been healthy since the outbreak of the virus.  Computacenter has itself taken a cautious approach to navigating the crisis. In April management axed the final dividend, citing the macroeconomic uncertainty. But with net cash of £20m and rising turnover, it is odds-on that management will declare a dividend with the half-year results in early September, especially as late in July it said that "2020, as a whole, will be a year of material progress".