A top UK stock for 2022 and beyond

Why I think this company’s 17-year record of uninterrupted growth in earnings per share looks set to continue and why I’d buy the stock now.

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IT infrastructure specialist Computacenter (LSE: CCC) describes itself as an independent technology partner. And it sources, transforms and manages the IT infrastructure of large corporate and public sector organisations.

It’s a good business. And the firm said in today’s pre-close trading update it expects earnings for 2021 to come in ahead of the directors’ previous expectations after a strong fourth quarter. 2021 will now be the 17th year of uninterrupted growth in earnings per share. And that’s “in spite of headwinds from a strong pound and product supply shortages.”

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A decent outcome for investors so far

And that long record of growth has worked wonders for the share price. At 2,680p, the stock is up by around 11% over the past year. But over five years, it’s around 240% higher. But on top of that capital growth, shareholders have enjoyed a stream of dividends. And the shareholder payment has been running at a compound annual growth rate close to 19% over the past few years.

If I had to sum up the appeal of this business to me in one word, it would be ‘consistency’. And for that reason, I’d want Computacenter to be a core holding in my portfolio now. But is the valuation right? And to answer my own question I’d say with its forward-l00king P/E rating running just above 17 for 2022, looks fair rather than cheap. But it’s not wildly expensive either if the business can maintain its gentle growth trajectory in the years ahead.

City analysts have pencilled in an essentially flat performance for earnings in 2022. So there don’t seem to be any immediate prospects for growth. But I’ve learned not to underestimate Computacenter’s apparent ability to keep grinding forward with progress. So, I’d expect a decent growth outcome from the business over, say, five years and more into the future.

In 2021, revenue grew by 23% including contributions from acquisitions made since the beginning of 2020.

A positive outlook

Looking ahead, the directors are optimistic for 2022 based on the “robustness of the business” through 2021 and the particular strength of the fourth quarter.  Meanwhile, the product order backlog is “at an all-time high and considerably larger than a year ago”. The directors reckon the situation arose because of product supply constraints leading to customers ordering earlier. However, they also said there is “significant” underlying strength in the market.

Computacenter went into 2022 with operations “growing in multiple geographies” and the directors think the business is “well placed” for another year of progress. But, of course, past performance is no guarantee of a good outcome in the future. And on top of that, the wider stock market has been showing weakness lately.

It’s possible that I could buy the stock now and see it decline if the market decides to re-rate the company’s valuation lower.

Nevertheless, I’m keen on CCC as a long-term hold and would likely be even keener if the share price declines from where it is now. Computacenter is a top stock for me to hold for 2022 and beyond.

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And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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