Europe’s leading independent provider of IT infrastructure services — the FTSE 250 company Computacenter (LSE: CCC) — just released another cracking set of full-year results (20 March).
Diluted earnings per share rose by almost 9% in 2023 – what is there to dislike? Yet the stock market has marked the share price down this morning. Near 2,736p, it’s about 7% lower as I type.
Better to travel than to arrive?
We see this a lot — businesses post great results and the stock falls. It’s a pattern that repeats, making it hard to predict what will happen with share prices.
Sometimes the phenomenon occurs because of investors’ expectations. My assumption is that optimism was already reflected in the price. So, if the company’s outlook statement fell short of the progress anticipated, some might sell.
Perhaps I’m over-analysing, though. Maybe it’s just better to travel than to arrive. There’s an old stock market adage: buy the rumour and sell the fact.
I reckon that advice is followed by lots of investors and traders. That’s why we often see share prices moving higher in the run-up to earnings releases and falling on the day.
However, none of this detracts from Computacenter’s great longer-term performance. Over the past decade, the share price has risen by around 270% driven by steady annual advances in revenue and earnings.
Chief executive Mike Norris pointed out this is the 19th consecutive year of growth in adjusted earnings per share. That’s quite a record, and the company has done a good job with shareholder dividends too. The compound annual growth rate (CAGR) of the dividend is running just above 21%.
To put that performance in perspective, in 2017 the dividend payment was just above 26p per share. However, City analysts expect a payment of just over 78p per share for 2024’s trading.
Plenty of ongoing customer demand
Norris said the company’s large customers continued to invest heavily in new technology to the benefit of Computacenter. In 2023, the firm managed the uncertain macroeconomic backdrop and inflationary pressures “effectively”. Inventory reduced, and now the business has a “record” net cash position.
Computacenter has carried a net cash position for several years leading to a strong-looking balance sheet. So that’s a massive tick on my checklist.
Looking ahead, Norris said the company has stepped up its investment in strategic initiatives to underpin competitiveness and future growth. Overall, the directors expect 2024 to be another year of progress with growth weighted to the second half of the year.
Computacenter has been a steady performer for investors over the recent decade or so. However, there have been times when its growth prospects looked underwhelming. This looks like one of those times.
City analysts expect a modest mid-digit percentage advance in earnings this year. So there’s some risk that the current valuation could contract if growth dries up. After all, the company has already been performing well for years.
The anticipated earnings multiple for 2024 is around 15 – which is above the median rolling price to earnings ratio of the FTSE All-Share index, which is near 12. Meanwhile, the anticipated dividend yield is only around 2.8% — short of the big yields above 5% we can get from some companies.
Nevertheless, I’d be reluctant to bet against this serial-performer over the long term and see Computacenter as well worth consideration and research-time now.
