There are some real gems tucked away in the FTSE 250, and IT infrastructure and services provider Computacenter (LSE: CCC) is one of them.
Computer whizz
The stock is up a thumping 125% over the past five years and, after dipping last year, has staged a dramatic recovery to grow 45% year-to-date.
The group, which offers technology expertise to corporate and public sector organisations, is up 3.5% today despite reporting a 2.3% fall in reported interim pre-tax profits. Investors preferred to focus on bullish comments from CEO Mike Norris, who said the board “expects that the full year 2019 profit growth, in monetary value, will be the best in the company’s history.”
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Norris said 2018’s first half “presented a very difficult challenge to beat,” whereas “the opposite is true of the second half.” So if the group delivers a good H2, the Computacenter share price could fly even higher.
Acquisition happy
First-half revenues did increase 20.8% to £2.43bn, while adjusted profits before tax rose 2.7% to £53.5m. However, these year-on-year figures included £416.8m of revenues and £1.3m of adjusted profit before tax from acquisitions made since 30 June 2018.
The £1.66bn group’s UK operations disappointed, with revenues down 7.8%, but France delivered 18.9% growth, and Germany grew 4%. Last year’s US acquisition underachieved, which Norris put down to rising operational costs and investment, and a decline in operating margins. However, he expects a more significant second half contribution.
Norris added that industry momentum remains positive as more businesses invest in technology to digitalise, and this is helping the group improve its operational capacity.
Computacenter has a history of delivering steady earnings growth and City analysts expect 8% this year, followed by a more modest 4% in 2020. It’s a little bit pricey, trading at 16.5 times earnings. The forward yield is 2.4%, but generously covered 2.5 times and management is progressive, with the interim dividend per share hiked 16% from 8.7p to 10.1p today. As Kevin Godbold recently pointed out, the dividend has increased 50% in the last five years.
All systems Red
You can get more generous dividends on the FTSE 250. For example, housebuilder Redrow (LSE: RDW) has a whopping forecast yield of 8.9%, nicely covered 1.8 times by earnings. That kind of payout is par for the course in the sector, as is the low valuation, heavily discounted due to Brexit fears. Overly discounted, I would say, because I think demand for UK residential property is so strong, given the rising population, it can survive even a no-deal departure.
With the Redrow share price trading at just six times forward earnings, any problems seem to be very much in the price.
Bargain price
The £2bn group has just delivered four consecutive years of high double-digit earnings per share growth, ranging from 22% to 54%, although analysts are anticipating a 2% drop this year, and just a 1% increase the next.
Yes, the government-funded Help to Buy is set to be scaled back in 2021. Yes, house price growth is finally slowing. Yes, Brexit. However, I still believe the housebuilding sector represents a terrific bargain at today’s price, and I’m not the only one. Royston Wild reckons Redrow is one hell of a profits and cash creator. Isn’t that what we’re all after?
