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Bytes Technology seeing double digit growth and a bright future


Bytes Technology Group LON:BYIT the FTSE250-listed IT services company based in Leatherhead, Surrey is due to publish its interim results next Wednesday (25th October).

The company is in a similar business to Softcat LON:SCT, which The Armchair Trader reported on yesterday, in that it is a software reseller and IT services provider. However, Bytes, established in a retail outlet in Epsom in 1982, is primarily a reseller of goods made by Microsoft NASDAQ:MSFT and also resells cloud storage, computer security and asset management software.

Like Softcat, the company is also a supplier of IT Products to the UK Public Sector and has benefitted from its big customers having to continue to invest in technology (especially as the UK Public Sector tries to take as much of its business online and synchronise across government departments).

It is this directive that is driving Softcat and Bytes sustainability, in that its customers need its products to remain current and supported, come rain or shine, and they don’t fall into the ’nice to have’ category. Needs vs. Wants.

Bytes Technology origins

From its origins in Epsom, Bytes grew and was ultimately acquired by South African entrepreneur, Bill Venter and consolidated with Venter’s Allied Electronics Corporation, and stayed as a division of Altron’s global business until December 2020, when it was spun out of Altron into its own entity and listed on the London Stock Exchange through IPO.

The Bytes Technology share price has climbed steadily over the year. Closing Tuesday (17th October) at 499.4p, over the year-to-date, Bytes offered a 32.2% return, and over one-year offered a 22% return. The shares have ranged between 355.6p and 548p over a 52-week period. The company has a market capitalisation of GBP1.17bn.

Its prelims, published in May to the end of February, made good reading for investors. Gross invoiced income – inclusive of products and services before taxes and expenses, which gives forward-looking outlook of the IT company’s future short-to-mid-term revenues – was up 19.1% year-on-year to GBP1.43bn. Revenue was up 26.5% to GBP184.4m and gross profit hit GBP129.6m, a 20.7% uplift y-o-y. As a thank-you to investors, final dividends were raised 21.4% to 5.1p/share.

Notable year on year growth

At the half-year point Bytes Technology said that it had continued to trade strongly during the first half of the financial year with notable year-on-year growth in gross invoiced income, gross profit and operating profit, “both growing comfortably in double digits” on the back of winning new corporate and public sector clients.

Bytes had GBP51.3m in the bank at the end of 1H23.

Bytes Technology Group comprises two leading brands, Bytes Software Services and Phoenix Software. Bytes Software Services’ customer base is made up of both private sector customers and public sector customers, whilst Phoenix’s focus is almost exclusively on public sector customers.

Bytes Technology is ‘one to watch’

The shift to flexible working is playing into Bytes’ hands, allowing it to capture more of the corporate wallet. This isn’t a cheap stock, but the products and services that Bytes sells are an integral part of the IT infrastructure backbone that all companies are reliant on today. Although the macroeconomic picture isn’t as rosy as it could be, Bytes, and Softcat both provide services that are essential in both the contraction and expansion phases of the market – to not have the right software, protection and storage can be a death knell to businesses small and large and this stock is definitely ‘one to watch.’

Bridgewise rates Bytes as a ‘Buy’. The analyst said: “At a high level, the metrics from Bytes’s 1Q23 financial report release were demonstrably positive. The company generate impressive and balanced results that reveal its underlying strength, not only in terms of value but also due to its impressive growth and value factors. These encouraging results suggest a bright future for Bytes’s stock. Correspondingly, Bytes received a ranking of 92 and a ‘Buy’ recommendation.”

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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