We all know that IT suppliers are having a great time thanks to unwinding post-pandemic pent-up demand, organisations embracing flexible working and the long-run shift to digital, but today’s half year results from Softcat (SCT) really put that into perspective.
Softcat is a value-added reseller, or VAR for short, meaning it sells third-party software and hardware to clients and then adds a range of services on top to help firms manage their IT.
These services can run from 24-hour online and phone support to remotely running a customer’s entire IT function.
Product partners include many software heavy-hitters such as Microsoft, Dell-EMC, VMware, Adobe, Mimecast and lots more.
BIG FORECAST BEAT
Figures for the six months to 31 January 2022 show operating profit up 12% to £64.1 million on a 34% jump in revenues to £771 million, thanks to increased spend per customer, ongoing cost controls and other factors.
The reduction in margins reflects a major data centre hardware project which contributed to the big bump in sales.
Analysts had forecast flat operating profit on revenues up 7% for the full year. Cash conversion of operating profit was 85%.
‘We carry over the significant outperformance in the first half 2022 and upgrade our full year 2022 earnings before interest and tax forecasts by 8% and outer year forecasts by 5%,’ said Numis analysts.
That implies £129 million of operating profit this year on £1,434 million of revenues.
‘Notwithstanding the very high bar we set during last year’s exceptional first half performance, these results preserve a run that now extends to 66 consecutive quarters of year-on-year growth in gross invoiced income and profit,’ said chief executive Graeme Watt.
Investors were certainly impressed, sending the Softcat share price surging 7.5% to £18.43, its highest since November 2021. The stock was changing hands at £14.45 at the start of March.
MANAGING GROWTH AND COSTS
The 12% growth in gross profit per customer and operating profit is far more reflective of the strength in demand, and it sounds as if the customer base should start to grow again due to 2021 sales efforts.
New customer numbers rose just 0.6% to around 9,700 in the period, yet the backcloth reflects constraints on sales in 2020, which is now showing consistent pick-up.
Softcat reckons it has just a 4% share of its addressable market.
This is despite rising costs thanks to inflationary pressures and the long tail of hardware component shortages such as microchips, which Watt sees unwinding through 2022 he told Shares on a call this morning.
‘The situation remains manageable and to put things into perspective, only a portion of our hardware portfolio is impacted. Hardware in total typically comprises 30% to 40% of our annual gross invoiced income, so most of our business is unaffected', Watt added.
Labour costs are also on the up with pay rises pushed through last month, which should help with staff retention.
To grow the headcount around 10% even in the face of tight technology skills suggests Softcat’s graduate, and now apprenticeship schemes, will continue to seed the Softcat team with young, ambitious new blood down the line.
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