Barclays downgrades Computacenter on valuation grounds
Barclays cut Computacenter to 'underweight' from 'equalweight' on Tuesday on valuation grounds.
Computacenter
2,556.00p
16:35 24/04/24
FTSE 250
19,719.37
17:09 24/04/24
FTSE 350
4,419.71
17:09 24/04/24
FTSE All-Share
4,374.06
16:44 24/04/24
Software & Computer Services
2,412.52
17:09 24/04/24
The bank noted that following a relatively slow start to the year, the shares rose 26% in the second quarter versus the Eurostoxx up 2.4%, giving a year-to-date increase of 25.4%. The performance was driven partly by better-than-expected first-quarter results, although Barclays argued that the revenue performance was largely driven by lower margin supply chain revenue.
"Following the strong share performance last and this year, the stock now trades at over 18x our cash adjusted FY19E price-to-earnings, a price we deem too expensive for a stock with this growth profile."
Although it cut the stock on valuation, it lifted the price target a touch to 1,100p from 1,080 on the back of earnings per share upgrades.
Commenting on the company's first-quarter update, Barclays said the outlook read positively and talked to a better-than-expected performance and another year of anticipated growth.
"The supply chain performance was clearly ahead of our expectation, but there will continue to be some questioning over the UK services trends, the most important part of the business."
Barclays said that if the company can quickly recover losses in France and improve the margin in Germany towards that of the UK, earnings would move upwards. "Longer-term, a convincing strategy around gross margin expansion could be a positive for the valuation multiple," it added.
In a downside case, however, if the situation in France fails to stabilise, Computacenter struggles to win new services contracts and contract renewals result in margin pressure, estimates and the valuation multiple could come under pressure, the bank said.
Barclays expects the first-half results in August to show 3% growth in services revenue and 17% growth in the supply chain, leading to overall revenue growth of 13%.
At 1540 BST, the shares were up 0.4% to 1,428p.