- Posts 68th consecutive quarterly growth
- IT demand remains firm despite recession risk
- Share price remains close to 2022 lows
Value-added IT reseller Softcat (SCT) continues to impress as a business, posting its 68th consecutive quarter-on-quarter of organic growth in both sales and profits. Its year to 31 July 2022 saw pre-tax profit up from £119 million to £136.1 million, on revenue up to £1.08 billion, from £784 million the year before.
The FTSE 250 business also increased its second half dividend to 16.6p per share from 14.4p, taking its total payout to shareholders to 23.9p, a 15% hike.
‘The company’s sheer diversity of customers, products, vendors and technologies makes it difficult to put our finger on any one hotspot (or notspot), with the company pointing to double-digit growth across all product areas and at least teens-growth across small and medium-sized businesses, enterprise and public sector,’ said Megabuyte analyst Indraneel Arampatta.
IT SERVICES IN DEMAND
It is certainly a sign of continued IT spend in the UK across various customer segments and verticals, although it’s very clear that Softcat also continues to take share, owing to its uniquely successful sales culture and expansion strategy.
Market shifts to increased digitalisation of workplace practises and embracing cloud technology are clearly seen as key enablers of better business value, for both customers and vendors, a point made by Liberum analysts in August, and flagged by Shares.
Offering optimism for the future is that while order backlogs remain manageable, there is plenty of market left to go after, and new opportunities potentially on the horizon in international markets, with a particular eye on the US.
RECESSION UNKNOWNS
Yet investors must not ignore the obvious risks that a prolonged recession could pose. History shows that many, perhaps most, businesses reign in investment in a pinch, and that could undermine demand for technology services.
This is surely why Softcat’s shares have been so weak this year, down 36% year-to-date. The stock fell 2% on these results to £10.94, close to their 2022 lows.
Softcat seems well-placed to absorb these impacts and has a large enough cash balance (£97.3 million) to potentially acquire troubled peers for their customer bases if opportunities arise.
‘Today’s full year 2022 results provide welcome reassurance and represent a move onwards and upwards, demonstrating once again the strengths of Softcat’s business model,’ said Shore Capital’s Michael O’Sullivan.
‘Periodic weak spells for IT upgrades, such as could occur due to the current inflationary pressures and heightened UK recession risk, or the perception of such periods, can create the best buying opportunities in Softcat on a five-year view and should not unduly deter investors, in our view.’
