Buy-back possible despite ‘subdued’ trading

Computacenter on Tuesday raised the possibility of a share buy-back as it revealed a 73 per cent fall in first-half profit and pointed to “subdued” trading over the summer.

The company, which specialises in computer software and services, on Tuesday reported a drop in pre-tax profit from £30.1m to £8.2m on turnover down 6.5 per cent at £1.15bn. Its shares fell by more than a fifth in June after it issued its third profit warning in seven months.

It said the decline in performance was largely attributable to a steep fall in product margin in the UK business, adding that trade was subdued in July and August. It said: “We anticipate a stronger profit performance in the second half and the outlook for the full year remains in line with market expectations.”

Its UK managed services business, which installs computer systems and provides technical support, continued to make progress.

Following a strategic reassessment exercise in the first half, Computacenter is aiming to cut costs and move from face-to-face selling of its products to telephone and internet sales.

Computacenter had £87.3m net cash at the end of the interim period.

Mike Norris, chief executive said: “Clearly we will now turn our attention to what we can do with the cash, which could take the form of a buy-back, a dividend or an acquisition. It is our intention to do something in the next six months.”

The news came after the “satisfactory” resolution last month of a tax-related dispute with GE relating to two acquisitions in Germany and Austria.

Earnings per share were 1.2p (10.7p), with an interim dividend of 2.5p (2.3p).

Operating profit from continuing operations was down 82 per cent to £5.42m for the six months ended June 30.

Shares in Computacenter fell 3½p to 200½p.

FT Comment

It is difficult to see Computacenter’s traditional business model surviving as it is squeezed by falling prices and a move by vendors towards more direct sales. Some analysts believe the company’s traditional UK product business is making little money. However, the company’s move to direct sales looks sensible, coupled with a development of its higher-margin managed services business. There are some glimmers of hope at its poorly performing French business, which it hopes will break even in 2007. Investors will need faith in the management’s ability to sort out the business as well as patience – it is not going to be a quick fix.