Computacenter predicts ‘modest’ growth in profits

Information technology consulting group Computacenter forecasts a much smaller expansion in earnings this year, as the pandemic-induced boom in demand dissipates following ‘two exceptional years’ of growth.

The FTSE 250-listed firm told investors on Friday that it expected to record a ‘modest’ rise in adjusted pre-tax profits, reflecting beneficial currency movements and ‘positive, but limited’ input from acquisitions. 

Computacenter’s recent takeovers have included Asia-focused Emerge 360, ITL Logistics in Germany and Business IT Source, a significantly expanding value-added reseller based in the United States, which Computacenter said has ‘performed well.’

Slowdown: For much of 2020 and 2021, Computacenter benefited from firms and public sector organisations spending more money on IT equipment

It noted that all segments of the Hertfordshire-based company had achieved strong results in technology sourcing during the three months ending September.

On the other hand, the group said trading within its services divisions was ‘more challenged’ because of heightened inflationary pressures and subsiding Covid-related demand.

For much of 2020 and 2021, Computacenter benefited from corporations and public sector organisations adopting work-from-home policies and spending more money on IT equipment.

Customers have comprised many prominent businesses, ranging from insurance giant Ageas and bookmaker William Hill to UK government bodies, such as Transport for London and the Department of Work & Pensions. 

This has led to a massive inventory backlog, as customers increasingly ordered in advance and semiconductor shortages impacted the global economy.

Back in September, the company reported that one unnamed hyperscale customer in California had seen its product order logjam jump by over $1.8billion since June last year.

The firm expects these supply chain challenges to continue relaxing over the remaining months of 2022, although it said the problems will not be ‘substantially resolved’ until sometime next year.

Computacenter further warned that earnings would be impacted in the near term by its expenditure in fields like cybersecurity and IT roadmap. 

It said: ‘These investments, as they increase, will continue to hold back short-term profitability, but we believe they are essential to secure our long-term success. This commitment to invest for the long-term gives us confidence for the future.’ 

Following the release of its trading update, Computacenter shares became the second-biggest faller on the FTSE 350 Index, declining 6.1 per cent to £17.92 by the late afternoon. 

Analysts at brokers Jefferies and Investec have both downgraded their price target for the business to £27 and £29 per share, respectively, as well as underlying profit forecasts given rising costs and investment decisions hitting margins. 

Nonetheless, both firms retained their buy rating for Computacenter stock, with Julian Yates and Roger Phillips of Investec claiming the IT provider has an ‘overly pessimistic forecast outlook.’