- Driving value in fragmented £52 billion addressable market
- Digitisation, Cloud, cybersecurity all hot investment themes
- Vital partners to tech giants like Microsoft, AWS, Adobe and Apple
Analysts at stock broker Liberum believe there is great long-term returns potential from the UK technology value-added reseller space, including Softcat (SCT), Bytes Technology (BYIT) and Computacenter (CCC).
‘VARs are a key component of the UK’s IT supply chain, which help vendors access the market and end-users procure more efficiently,’ said the Liberum team in a initiation research note to clients. ‘Softcat, Computacenter and Bytes are the market leaders in a fragmented £52 billion addressable market for software, IT infrastructure and services.’
Liberum sees the opportunity built on a three-pronged foundation of digitalisation, Cloud and hybrid infrastructure and cybersecurity.
- Digitalisation: enabling or improving processes by leveraging digital technologies and digitised data, moving to a digital workplace and increasing collaboration.
- Cloud and hybrid infrastructure: the shift from on-premise to cloud provides greater flexibility and is more efficient.
- Cybersecurity: to protect enterprises from cyberattacks and manage data appropriately.
Microsoft expects technology spend as a percentage of total GDP to double from 5% to 10% by 2030.
‘The relative growth of technology is being driven by the shift to cloud and hybrid infrastructure, digitalisation, cybersecurity, mobile networks and edge computing,’ said the Liberum analysts.
Gartner and IDC expect a UK IT market CAGR (compound average growth rate) of 6% to 7% to 2025, with higher margin software, cyber security and cloud-related spend expected to grow faster than hardware and services.
CRITICAL SOFTWARE ‘STICKY’
While Liberum’s researchers accept that there is cyclicality in technology spend, they believe that software investment should be relatively robust because it is business critical and software suite switching is often expensive and disruptive.
‘In a downturn, such as in 2002 and in 2009, capital expenditure on hardware is cut and projects deferred,’ said Liberum. ‘Software is stickier, as licences typically last for one to three years, with a lagged sensitivity to employment.’
Usage of cloud has yet to be tested over an economic cycle, Liberum Said.
‘We expect cyber security (30% CAGR), Cloud (25% CAGR) and software vendors to grow faster than hardware vendors,’ said the analysts. ‘Microsoft (MSFT:NASDAQ) is the key partner for Bytes and Softcat, and it expects double-digit revenue growth globally in full year 2023.’
Microsoft is just one of the many massive tech companies whose products VARs reseller to clients, alongside the likes of Amazon’s (AMZN:NASDAQ) AWS, Apple (AAPL:NASDAQ), Adobe (ADBE:NASDAQ) and VMware (VMW:NYSE).
‘The VARs offer investors a way to gain exposure to Microsoft, software and cyber security vendors that have pricing power and which we expect to grow at double-digit rates to 2025,’ said Liberum’s team.
