FTSE 250 IT infrastructure and services provider Computacenter (LSE: CCC) has been a consistent performer for years delivering generally rising revenue, earnings, cash flow and shareholder dividends.
But the stock is down today on the release of the full-year results report and it’s been falling since early February, down around 30% now from its peak back then. Of course, there’s nothing unusual about that move because many other stocks are falling too. And many investors are fretting about how much the Covid-19 outbreak can affect the economy and the businesses behind shares.
Uncertainty immediately ahead
Chief executive Mike Norris commented in the report that the virus makes forecasting the future “even more challenging.” In the short term, he says Computacenter is “urgently” supporting its customers with their business continuity plans. Often those require more remote working. And that has led to a “surge” in demand for laptop computers, he said.
However, so far supply constraints have been “minimal”, although he has “concerns” about the future. He’s also thinks that in the medium term, customers may postpone “significant” IT infrastructure projects while uncertainty remains. Naturally, he’s bullish about the longer-term outlook after Covid-19 has faded into history.
So I reckon the market is being rational by marking down Computacenter’s shares. There could be significant disruption to the business for a long time because of the coronavirus. But I’m watching the stock because of its apparent defensive and cash-generating characteristics.
In ‘normal’ times, the share price had been flying to reflect the steady operational progress. Even now after recent declines, the share price is around 250% higher than it was 10 years ago, and shareholders have enjoyed a rising stream of dividend income along the way as well.
Impressive figures will be hard to beat
For what it’s worth, today’s figures are impressive. Overall revenue rose by just over 16% compared to the prior year, adjusted diluted earnings per share moved more than 22% higher, and net cash from operations shot up by a little over 75%. The directors slapped just over 22% on the total shareholder dividend for the year.
However, the top management team appears to expect growth rates to decline in 2020. The company said that “it may well be difficult to achieve the same growth rates we have seen in recent years.” But the pipeline is “strong” in both Professional and Managed Services. And the directors think customers will continue to invest in the firm’s product, “particularly in the areas of Security, Networking and Cloud.”
One of the things I admire most about Computacenter is its steady cash performance and cash-rich balance sheet. I reckon the firm is well placed to overcome current challenges in the market and could make an enduring long-term ‘hold’. With the share price near 1,351p as I write, that growing dividend is yielding a forward-looking 2.7% for 2020. I’m poised and ready to pounce!
