Computacenter LON:CCC, the FTSE250-listed software and IT services company published a trading update to end-December 2022 today (31st March).
It had a flat year in terms of profits, reporting GBP249m profits before tax against GBP248m in 2021, despite revenues increasing 28% to GBP6.5bn. Not a great deal changed year to year. Cash was marginally down from GBP273m to GBP264m and earnings per share fell 1% to 159.1p.
It was a tough trading year, and came on the back of the Covid-19 slowdown. However, during the pandemic there were some benefits for Computacenter, given the rise in working-from-home, and demand for greater cyber-security, network expansion and VPN services.
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But as the workforce began to return to the office the benefits for the company from WFH started to unwind, despite in a report at the time of the pandemic the company saying: “A recognition that things will not be the same again dawns. We are redefining ‘normal life’ to accommodate significant changes that we need to adapt to, testing our tolerances. Accepting social distancing and contact tracing, dealing with the anxiety and fears of employees and consumers, compound a lack of confidence of people, customers and in the markets overall.”
Covid benefits disappear
Mike Norris, chief executive said today: “At Computacenter, we are pleased to have shown adjusted earnings per share growth in 2022 over the previous year considering the challenging headwind from the unravelling of temporary Covid-related cost base reduction benefits. In 2023, we do not have anywhere near the same challenge as we have faced in 2022. By the end of the first half of 2022, almost all of the Covid benefits had disappeared from the business.”
The company provides information technology infrastructure and services to businesses of all sizes, from small and medium-sized enterprises to large multinational corporations. Computacenter’s performance over the last 12 months has been mixed. The company’s revenue has grown by about 2% in the year to 31st March 2023, but its earnings per share fell by 10%. The company’s share price has also been volatile, falling over 20% over a year.
There are a number of factors that have affected Computacenter’s performance over the last 12 months. The global economic slowdown has led to a decline in demand for information technology services. Computacenter has also been affected by the ongoing trade war between the United States and China, which has disrupted the global supply chain.
In addition, Computacenter has been facing increased competition from other IT services companies, such as IBM and Accenture. These companies have been investing heavily in new technologies, such as cloud computing and artificial intelligence, which have made them more competitive.
Emerging market potential
However, emerging markets, in Asia especially are growing rapidly and hungry for IT resources, and it is in this market where the greatest potential growth for the company lies.
In order to improve its performance, Computacenter needs to focus on winning new business in new markets. The company also needs to invest in new technologies, such as cloud computing and artificial intelligence. Computacenter also needs to improve its cost-cutting efforts.
Computacenter opened trading today at 2,100p, but was down to 2,094p by 11:00. The company has offered a year-to-date return of 9.37% and a one-year return of -28.5% with shares ranging between 1,780p and 3,050p over a 52-week period. The company has a market cap of GBP2.6bn.
Norris said: “Our challenges for the coming year include, to a small extent, technology sourcing margins, due to the fact it is the largest customers, which are dilutive to margins, that are spending most, and, more significantly, Services margins due to price pressure in the market and salary inflation. Supply constraints have eased materially and while some will always remain, we are now operating at close to normal market conditions.
He continued: “Aligned with this, our inventory levels started to fall at the start of the fourth quarter of last year and we expect further reduction this year, which will continue to decrease the working capital required in the business.”
Bridgewise rates Computacenter as a ‘Buy’ saying: “At a high level, the metrics from Computacenter’s Q2 financial report release were demonstrably positive. Their income and value factors performance indicate that company management is focused on the right targets and executing well. We expect that this positive performance will continue in the coming months, and anticipate that Computacenter will maintain good momentum even in a challenging environment. Therefore, they earned a total score of 79 out of 100.”
