You could never accuse Mike Norris of having an Elon Musk complex. The chief executive of Computacenter, one of Britain’s oldest listed technology companies, has straightforward tastes. As a young computer salesman, he couldn’t believe his good fortune when his first boss handed him the keys to a shiny new Ford Escort.
Mr Norris does not have a Twitter account and so avoids picking fights with investors, analysts and unsuspecting scuba divers. And unlike Mr Musk — who has grandiose dreams of upending multiple industries — he runs an uncomplicated outfit. It sells PCs, servers and software and helps customers, such as Daimler, Astrazeneca and Rolls-Royce, to install and maintain their IT networks. It’s the dull stuff that companies are happy to farm out.
Computacenter, however, has been an exciting ride for its long-term investors. Since 2008, the share price has risen tenfold, giving it a market value of £1.5 billion. It revels in its mundanity, recently picking up the “boring” accolade at an IT awards ceremony, for delivering more than ten years of uninterrupted earnings-per-share growth. In an industry where heavy losses are almost de rigueur, Computacenter enjoys rising sales and profits and returns plenty of cash to investors.
Now Mr Norris is at risk of turning Computacenter into something, well, a little more interesting. Last month, he acquired a sizeable business in the Netherlands. Yesterday Mr Norris, who has run Computacenter since 1994, followed that with his first ever acquisition in the United States. The company is spending $70 million to swallow Fusion Storm, an IT services company, with a further $20 million due in 2020 if it hits performance targets.
The deal will significantly strengthen Computacenter’s position in America, with headcount rising from 650 to 1,000 workers. The company set up shop in the US two years ago to serve existing European clients. After the acquisition, it will have its own slate of US customers.
On the surface, Fusion Storm’s profit margins are anaemic. Last year it reported pre-tax earnings of $3.9 million on turnover of $595 million. Mr Norris said that Fusion Storm’s founder, who no longer works at the company, extracted about $4 million in dividends and other payments every year. This outlay will drop to the bottom line as soon as Computacenter takes control. Profits will be further boosted after a $45 million debt refinancing, which will reduce Fusion Storm’s $5 million annual interest bill significantly, according to Mr Norris.
Computacenter traces its roots to the era of the Commodore 64, opening its doors in 1981 as a reseller of computers. After expanding in France and Germany, it listed on the London Stock Exchange in 1998.
Its revenues rose 18 per cent to £2 billion in the first half of the year, driving underlying earnings 24 per cent higher to £52 million. The company, which returned £100 million to investors via a share tender offer this year, is paying out a half-time dividend of 8.7p, an increase of 17 per cent from last year.
The shares closed 4p higher at £12.70 on the back of the US takeover. Since raising its profit forecasts in July, they have fallen from an all-time high of just above £16. According to Investec, the stockbroker, it is now trading at a price-to-earnings multiple of just under 17 times present year profit estimates and offers a 2.1 per cent dividend yield. That’s hardly a steal, but, given the regularity of its returns, Computacenter is worth a look.
Advice Buy
Why Computacenter consistently delivers and its expansion into the giant American IT market makes sense
Petro Matad
Is there black gold deep beneath the arid plains of the western Gobi desert? Petro Matad thinks there could be — 480 million barrels of it, to be precise (Emily Gosden writes).
The oil explorer said yesterday that it was in the process of moving rig equipment to a remote spot in the Baatsagaan basin in Mongolia, 20 miles from the nearest town, where it plans to start drilling its Wild Horse 1 well this month.
It’s a high-risk, high-reward well, what’s known as a “wildcat”, aiming to open up an entirely new, unexplored oil frontier.
Mike Buck, chief executive, gives it about a one in six chance of success and industry peers are watching with interest. Wood Mackenzie, the consultancy, named it among its 20 wildcats to watch this year.
Petro Matad was listed on Aim in 2008 and drilled a series of wells elsewhere in Mongolia in 2011 that failed to strike oil. In 2015 it secured a deal with BG Group to fund exploration, but Shell’s takeover of BG put paid to that.
Petro Matad is now going it alone, after failing to secure a replacement partner, but it has faced repeated delays and setbacks. Last month it finally drilled the Snow Leopard well, another wildcat prospect targeting 90 million barrels, but this came up dry.
Wild Horse is a far bigger potential prize, though even completing it could be a challenge if harsh winter conditions set in sooner than the company expects.
Four more wells are scheduled for next year, including some lower-risk, lower-reward prospects in the eastern Gobi. These are targeting only between ten million and 25 million barrels each but are near other companies’ discoveries and Mr Buck reckons that they have as good as a one in two chance of success. However, they would be very much a consolation prize if Wild Horse fails.
Petro Matad is worth about £40 million, despite having no production or discoveries. If Wild Horse comes up trumps it could transform the company’s fortunes, so gamblers may want to place a speculative bet — but at this stage it really is a roll of the dice.
Most investors should steer well clear.
Advice Avoid
Why Risky gamble on make-or-break drilling campaign
