Computacenter profits lifted by German market

Decision to focus on continental Europe paying off

Strong demand for IT services in Germany helped Computacenter to offset a decline in its UK revenues in the first half of the year.

The company’s decision to focus its attention on continental Europe appears to be paying off after interim pre-tax profit rose by a quarter.

However, UK revenues at Computacenter, which counts Wm Morrison and Severn Trent among its clients, suffered after several large customers cut back on their spending.

The group has been affected by a decline in government contracts following last year’s comprehensive spending review, with UK revenues falling by 16 per cent to £547m ($892m) .

But this did not deter the group, which ended the half with net cash of £81m, from increasing its interim dividend by almost 30 per cent.

“This is our sixth consecutive year of double-digit dividend growth,” said Mike Norris, Computacenter chief executive.

“It’s fair to say that German exports from those large corporates – such as BASF, Bayer or Daimler – are doing well. There is definitely a correlation between corporate profitability and expenditure, and the largest capital expenditure that more corporations have is IT.”

Mr Norris said growth in Germany was likely to slow in the second half because of a tough comparative period last year but that UK year-on-year figures should improve in spite of an unchanged economic environment.

“In the same way that Germany will not grow as much in the second half, the UK will not shrink as much,” he said.

In the six months to June 30 Computacenter reported pre-tax profits up from £20.9m to £26.2m on revenues up from £1.29bn to £1.36bn. Diluted earnings per share rose from 10.3p to 12.7p, and an interim dividend of 4.5p was proposed.

“I don’t see it as something to get overly worried about,” said Julian Yates, an analyst at Investec, of the slip in UK revenues. “The government is scaling back, and it boils down to a few big customers not spending as much as they did last year.”

Computacenter shares rose by 4.6p to 374.1p.

FT Comment

Shares in Computacenter are sensitive to changes in sentiment about the economy – IT spending is often one of the first things that companies cut when times are tough. Such concerns have sent the shares down over the past month, falling from almost 500p in July to 374p on Tuesday. However, the recent correction now puts the shares on a dividend yield of 4 per cent, and the price/earnings ratio of 9 is on par with the sector average – enough to attract the attention of investors who think that the economic pessimism has been overdone.

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