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Softcat wobbles despite £1bn in sales

The IT reseller breached the £1bn revenue mark in 2020, but the market is concerned about the outlook for corporate demand
Softcat wobbles despite £1bn in sales
  • Differing demand trends emerge between the public and private sectors
  • Receivables on the rise as a proportion of sales
IC TIP: Buy at 1,142p

Softcat’s (SCT) gross profits climbed by more than a tenth in 2020, supported by strengthening demand from the public sector over the year. However, the IT reseller said that it has seen corporate demand soften, with the fall in private sector interest spooking the market, sending the shares down 9 per cent on the morning of the results.

But trading was far from gloomy, with revenues passing the £1bn mark for the first time. Indeed, the company has used the extra cash to add the value of its previously cancelled half-year dividend to its final payout, which is also on top of a proposed special dividend of 7.6p a share. 

On the negative side of the ledger, cash conversion dipped 4 per cent compared with last year, weighed down by a major refurbishment of its offices in Manchester and Marlow. These projects were perhaps ill-timed, or perhaps simply unfortunate, given that only around 20 to 25 per cent of employees are now working on-site, by chief executive Graeme Watt’s estimate. And although the company has seen a good start to the current financial year, it expects that corporate customers will be carefully monitoring their spending in the months ahead. Receivables as a proportion of sales has increased year on year, so investors need to monitor whether the situation deteriorates if customers struggle to meet their obligations. For now, an £80m cash buffer should enable the company to ride out the economic disruption. Buy. 

Broker Peel Hunt forecasts adjusted pre-tax profits of £95.2m and EPS of 38.5p in 2021, rising to £98.3m and 39.8p in 2022. 

Last IC View: Buy, 1,261p,  6 Aug 2020

SOFTCAT (SCT)   
ORD PRICE:1,142pMARKET VALUE:£2.27bn
TOUCH:1,140-1,142p12-MONTH HIGH:1,425pLOW: 906p
DIVIDEND YIELD:1.5%PE RATIO:30
NET ASSET VALUE:71pNET CASH:£70.3m
Year to 31 JulTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20160.6742.416.95.3
20170.8350.320.49.0
20180.8068.127.912.1
20190.9984.834.614.9
20201.0893.638.216.6*
% change+8+10+10+11
Ex-div:05 Nov   
Payment:11 Dec   
*Excludes proposed special dividend of 7.6p a share