Stock Pitch - Computacenter (LON:CCC)

11th May '21 by Ben Hobson

7 comments 4269 reads

The Stockopedia Investment Club has had some good results from technology-related stocks in the past, but the sector is under-represented in the portfolio. One of the few tech companies that passes our basic screening rules is enterprise IT infrastructure group, Computacenter (LON:CCC).

Computacenter is an interesting prospect; it’s a large-cap with a promising growth profile. And while its margins are only modest, there’s a lot to like about its financial strength, market position and company culture.

While an IT reseller is unlikely to attract frenzied popularity or see the kind of explosive rerating you can sometimes get in more disruptive tech plays, its dependability is appealing. Jack explored the investment case for the stock in 2020 and it was pitched to the SIC on 6 April.

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Summary

Bull Points: Well financed, strong market position, good management, tech exposure, growth ambitions, could benefit from a post-Covid spending surge

Bear Points: Thin margins, competitive market, acquisitive growth overseas could be risky, doesn’t catch the imagination like other tech stocks

Profile

Computacenter is a Software & IT Services group in the Technology sector. It describes itself a leading independent technology partner trusted by large corporate and public sector organisations. Its target market is the largest 500 corporate and government organisations in the countries where it operates. By handing over the sourcing and management of their IT systems to Computacenter, those customers can focus on their core businesses.

Computacenter employs 16,000 staff and has three main service offerings: technology sourcing, professional services and managed services. It sums these up as helping customers to source, manage and transform their technology infrastructure.

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A share price of ~2600p gives the stock a market cap of £3.0 billion. Stockopedia views it as an Adventurous, Large Cap, Super Stock, with a Quality Rank of 90, a Value Rank of 65 and a Momentum Rank of 68. That gives it an overall StockRank of 90.

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About the opportunity

While Computacenter isn’t exactly a classic ‘fast grower’, it is growing reasonably well for such a large business. Sales have grown at an annual compound rate of 12.2% over the past five years. It appears to be well managed, very profitable and has a strong cash position. The stock looks reasonably priced (in a sector where…

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Rainer Gehler

11th May '21

Do you think that the Company have peak ROCE at the moment ?

mevans6890

Hi Ben - thanks for sharing this with us, very interesting. I hold Softcat (LON:SCT) and have used the comparison tool - one obvious question is why does the market rate it significantly higher. Return on capital may be the reason as it is just over twice as high. It also has a fantastic long-standing consistent growth record but then so does Computacenter (LON:CCC)

it is interesting that Softcats CAGR of things like turnover and earnings are much higher than those concerning cashflow. Maybe a sign of a little bit of over enthusiastic accounting?

I hold Softcat and have for several years but am seriously thinking of selling given the above and high rating

Dulpesh

Thanks for the write up Ben. Is there a reason the figures in the two screenshots for Growth & Value 12m Forecast Rolling differ? The first s/shot shows a P/E of 20.1 but then the same screenshot further down in the 'Valuation' section shows 19.9? Some other metrics differ too...?

gazzastewart

A really interesting read, thanks for posting.

My thoughts are the 'box shifting' element of this business makes up the majority of the revenue, on thin margins. Would like to see how much of this is end user devices vs data centre type boxes, as the migration to hyper clouds such as AWS, Azure etc would eat into this revenue as more services from these players are purchased vs 'box shifting' businesses. Assuming the managed services element is recurring, this didn't grow. Good growth in professional services, but this is riskier type work, usually not recurring revenue and so would attribute a lower multiple to this type of revenue.

I am on the fence on this one. Value does look good, but worried too much of the business is still reliant on box shifting that I think may decline in some areas

1James1n1

I have held Computacenter (LON:CCC) for the past 4 years and believe the above article is a great summary of the company and its history, as well as prospects.

I would note firstly that the company is essentially a retailer in the Tech sector and so comparison of the forward valuation to the sector is not true like with like. Although the company has unique capabilities to take product from vendors, configure as required and deliver to end users, this IP is different to that of a Tech company with proprietory software or capabilities.

The article did not mention that the company share count has been decreasing in recent years due to periodic buy-backs. Acquisitions are funded from cash and minimal debt, so meaning that profits are increasing as the share count falls, resulting in the EPS CAGR growing much faster.

The other point I would highlight is that Analysts for the company cannot seem to forecast forward. Firstly, over the years I have followed the company, analysts have under forecast each year, meaning that either they are getting regularly surprised or that the company guides very conservatively. Second, each year the analyst graphs look like the one in the article, with the two years forecasts evolution over-lapping each other - analysts cannot forecast this company year in, year out. Perhaps this gives PI's an egde if they can do better than analysts in forecasting?

My take away from the Q1 TU is that the company wish to see Q2 performance before changing forecasts - they face tough Q2 comparatives, so if performance is strong in the current quarter, then they may amend FY21 forecasts.

Andrew Coaton

I have worked for Computacenter as a consultant, they are very impressive company to work for and much respected in the industry. They are top rated partners with Citrix and Microsoft and some of their consultants went on to work for Microsoft / Citrix. At the main branch in Hatfield they would have a stand up meeting every week and broadcast to all the company what the progress was on Leads and contracts ect.

Harry Hindsight

Computacenter (LON:CCC) - no problem with the company but maybe chip shortages and return to offices may flatten the sales, along with cars, kettles and anything else that seems to have a gadget in it.

Stock Pitch - Computacenter (LON:CCC)

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Ben Hobson

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