Computacenter PLC

Computacenter PLC (LSE: CCC) is an FTSE 250 index listed UK-based information technology infrastructure and operations services company which operates in the United Kingdom, Germany, France, North America and internationally. This Report covers the Key Recommendation Rationale, Conclusion, and Recommendation on the stock.

Key Recommendation Rationale – Sell at GBX 2,634.00

• Resistance near Current levels: CCC’s stock price approached Resistance (R2) which was stated in the previous report on 05 February 2025 therefore, there can be a possibility of a decline from resistance levels. Considering the market conditions and the price action, it is prudent to exit the stock.

• Decline in Profitability: Computacenter's adjusted operating profit fell by 9.1% to £246.7 million in FY24 (FY23: £271.5 million), while adjusted profit before tax declined by 8.6% to £254.0 million in FY24 (FY23: £278.0 million). This decline was primarily attributed to weaker market conditions in the UK, underperforming Managed Services contracts, and increased Group-wide investments. Although North America delivered a record year, the overall profitability was negatively impacted by cost pressures and a challenging IT spending environment.

• Margin Compression: The company experienced a decrease in gross margin by 22 basis points, dropping from 15.1% in 2023 to 14.9% in FY24, with Technology Sourcing gross margins falling by 31 basis points due to a shift towards lower-margin transactions. This decline suggests pricing pressure and a potential shift in the business mix, with increased competition affecting margins in key segments.

• Macroeconomic Risk: The market sentiments can remain weak in the short term due to the subdued consumer disposable income, geopolitical tensions, and political risks.

Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

Conclusion

CCC is expected to trade at a premium, considering the growing order backlog and improving pipeline of opportunities, increasing market share, reduction in interest rates. For conducting the valuation, the following peers have been considered: Kainos Group PLC (LSE: KNOS), Cerillion PLC (LSE: CER), etc.

Given its current trading levels, the recent strategic investments and partnerships, market expansion and cost optimization strategies, along with a homecare acquisition in France, recent rally in the share price, relative valuation, and associated risks, it is prudent to exit the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the Closing Market Price of GBX 2,634.00 as of 19 March 2025. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 19 March 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.