Redcentric still digesting acquisitions

It is tricky to assess Redcentric’s (RCN) half-year performance due to the impact of some hefty acquisitions. The IT services group, which works with the likes of Howdens and Hays, made two purchases around the time it published its interim results last year. It has now restated its 2022 figures to reflect these acquisitions, causing past profits to turn into substantial losses. 

Based on today’s results, Redcentric’s growth has been encouraging. Total revenue is up by a third at £82mn, and over 90 per cent of its sales recur, with customers tending to enter long-term contracts. Meanwhile, adjusted operating profit grew by 43 per cent in the period to £5.6mn.  

Redcentric admitted that comparing the numbers is “very difficult” though, given that last year’s figures don’t include full contributions from the Sungard and 4D Data Centre acquisitions. Helpfully, therefore, it also provides figures for the six months to 31 March 2023 to compare with the latest numbers. Growth over these two periods was far more modest, with total revenue up by just 2 per cent. However, the group did return to a statutory operating profit after reporting losses in the six months to March. 

Ultimately, Redcentric is still in a state of flux. There are lots of exceptional items flying about and capital expenditure is high – as is debt. Chief executive Peter Brotherton said the integration of the acquired businesses is “on track to be fully completed by the end of this financial year” but until then we remain on the sidelines. 

Redcentric’s electricity bills, which have become one of the group’s biggest cost items, are also worth keeping an eye on. Management said it had put “considerable effort and resources into reducing electricity volumes” and secured future electricity commodity prices at "competitive rates" for FY24 and FY25. Over the longer term, however, this commodity exposure could add further uncertainty. Hold.