Cube Midcap Report (3 Nov 2019) – Catching up with Computacenter #CCC

Cube Midcap Report (3 Nov 2019) – Catching up with Computacenter #CCC

Here’s a guest post by James on a FTSE 250 company which updated during the week. James has a long position in CCC.

Computacenter (CCC)

  • Share price: £13.74 (+0.4%)
  • Market cap: £1,568 million

Q3 Trading Update

This update from Computacenter signalled that trading was in-line with expectations, as upgraded in the update at the end of July 2019.

That upgrade spelt out how in the second-half of 2018, Computacenter performance had lagged the first half, in part due to contract penalties associated with under-performing contracts. With those contracts now under control, the performance in the second half was expected to outperform prior year and therefore profits for the full-year 2019 would exceed previous management expectations.

About Computacenter

To back up a little, for those unfamiliar with Computacenter, the company is an IT reseller, with a large “Technology Sourcing” operation and smaller “Managed Services” and “Professional Services“ divisions. It provides IT kit which ranges from on site servers, through to laptops for staff as well as managing IT services such as Helpdesks and consults on other services such as IS security and infrastructure.

In common with other industry operators, the company has experienced very favourable trading conditions over the past few years as companies spend on their IS and digital infrastructure as well as manage Windows withdrawing support for older software versions and help clients migrate to cloud services.

The company has seen increased activity in the past couple of years as it has invested in a huge new warehouse in Germany for handling IT equipment, it has bought several companies in Switzerland, Netherlands and most significantly in the US.

The company is led by CEO, Mike Norris, who has been in position since 1994, and was cited by the FT in a recent interview as the longest serving CEO in the FTSE 350. The corporate structure of Computacenter, with the original founders still holding a sizeable chunk of shares, has provided the company with stability and a solid basis to take a longer term view when considering business decisions and strategy.

Update highlights

The update overall was positive and upbeat as it talked about “revenue and profitability remain well ahead of our 2018 Q3 year-to-date performance” prior to the impact of acquisitions. The company did well in the first half against a strong 2018 comparative and then roundly beat Q3 2018, setting up for Q4 which is always a pivotal quarter for the company, as many deals close in December, presumably aided by customers wishing to spend budget and finalise purchases in the current operating year.

Looking deeper into the statement, it would appear that France continues to enjoy a very strong year in 2019 with good performance continuing into Q3, weakness in German private sector business significantly offset by private sector sales, whilst the UK seems to be performing adequately. I was pleased to see the US performing strongly in Q3 as the FusionStorm acquisition looks like a strategic key to the company accessing US corporates for future revenue streams, backed up by Computacenter’s global offering.

Lastly, a contract loss was noted in relation to France. I suspect that contract wind-down and transition to the winning bidder will mean negligible impact in 2019, but the company notes this will have a small impact in 2020.

Outlook & Opinion

The outlook of the Trading Statement noted “challenging economic conditions” but set this against continued strength in customers’ desire to digitise their operations. The statement continued by saying that “the Board’s confidence with its current expectations continues to strengthen as we progress through the year” and noting the critical contribution the fourth quarter makes to overall performance.

I was encouraged overall as the main thrust of the statement was that the Company continues to perform well and appears positively set up for a good finish to 2019. I see from stockopedia that analyst estimates for both the current year and 2020 have been nudging up over September and October and the Company maintains a useful page on its website comparing final results to analyst forecasts and showing that these forecasts are indeed very close to the final outturn, albeit the company always seems to keep just a little juice in the tank to surprise positively to the upside.

I believe the company is conservatively managed and my experience has been that it is honest and factual in disclosures to the market.

I am happy to hold for the combination of excellent cash generation, future upside of recent acquisitions, regular cash returns to shareholders and a sector that continues to ride high. My own personal view is that a share price up to 1,500p offers value given current known factors.



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