Germany was the fastest- growing G7 economy last year. That is good news for Computacenter, the IT services group, which gets about 45 per cent of its revenues there and which yesterday brought forward a trading statement planned for Friday to indicate that it is trading ahead of expectations.
As recently as 2014 the group faced headwinds in Germany and France but the year has started strongly for both of these territories.
Computacenter supplies hardware and services and has benefited from a buoyant market as German companies expand and double down on digitalisation of their businesses and processes.
Revenues in Germany rose by 23 per cent for the first quarter with services revenue rising by 8 per cent and hardware revenue up by 31 per cent, all in constant currency. In France, first-quarter revenue rose by 6 per cent with services revenue up 22 per cent and hardware up 2 per cent, also in constant currency.
The picture in Britain remains mixed, however. Revenue fell by 1 per cent, with a 4 per cent growth in services offset by a 4 per cent decline in hardware sales. Mike Norris, the chief executive, attributes the fall in hardware sales to weakness in the financial services sector, where many capital expenditure plans have been on hold since last year. He is at pains to point out, though,, that while services account for about a third of the total revenue, it is the most profitable side of the business by some way. It would not be unreasonable to expect that the continued drive by companies to digitise their operations will support a recovery in Britain as corporate customers come back after deferring their IT spend. However, the big question is when this might start to take effect.
Customer pressure to reduce costs remains a factor in all three markets, although it is fair to say that companies across the sector are experiencing this and those that handle it best stand to gain market share.
Computacenter has a history of cash generation and has plenty on the balance sheet. It also has a history of paying special dividends every couple of years or so.
Analysts are forecasting full-year profits for the year of between £94.2 million and £95.4 million, up from £86.4 million last year. The target price on the shares, which rose 7.7 per cent yesterday to 790p, ranges from 900p to 990p.
My advice Buy
Why The drive to digitalisation by corporates will fuel demand
Goals Soccer Centres
A combination of Goals Soccer Centres and Powerleague has long felt like a deal waiting to happen. Britain’s two biggest five-a-side football centre operators were each founded in 1987, both are based near Glasgow and on-off discussions about teaming up have been taking place since 2012.
The latest talks, confirmed yesterday (albeit at a very early stage), come after speculation that Patron Capital, Powerleague’s private equity backer, has been touting the business around with an asking price of about £70 million.
The other impetus to a deal is the nascent turnaround in Goals’ fortunes after a series of own goals under previous management. The newish chairman Nick Basing and Mark Jones, who joined as chief executive last year, have returned the group to profit, its centres are being modernised and its debt cut.
A combined company would not only be able to save about £4 million in head office costs, but the scale of a £180 million business with almost 100 centres would give it a powerful hand against the host of new budget operators as well as the resurgent local authority five-a-side sector.
The combination of Goals’ two centres in Los Angeles (and one on the way) with Powerleague’s sites in Dublin and Amsterdam provides the platform for international expansion.
The main potential barrier to the merger, after which the board is likely to be led by Mr Jones, is the Competition and Markets Authority, although yesterday’s statement made it clear it is “but one of the strategic opportunities” Goals is examining.
My advice Buy
Why Deal or no deal, the board is starting to score
Alliance Trust
Shareholders will have a chance to quiz the board of Alliance Trust at its annual meeting in Dundee on Thursday. Of particular interest will be a presentation by Willis Towers Watson, which was appointed this year to be the trust’s outsourced investment manager.
That shake-up has its roots in a bruising battle that Elliott Advisors, the US activist investor, fought over the performance and direction of Alliance that peaked when shareholders voted for change almost two years ago. Katherine Garrett-Cox has since been removed as chief executive and the board restructured to become solely made up of non-executive directors. Elliott has also exited after a £620 million share buyback deal for its near 20 per cent stake was approved this year.
Willis Towers Watson is advocating a strategy with eight investment managers in North America and London each picking a list of between 20 and 25 stocks that will boost the number of equity holdings in the 129-year-old trust from about 60 to closer to 200.
Alliance has said that the move will lead to higher charges but has extended its performance target to 2 per cent each year. Its shares have steadily improved from 502p in January last year to 687p yesterday.
My advice Hold
Why Dividend is solid. New strategy could lift performance
And finally . . .
The broker to Lok’nStore, the self-storage company, raised its target price from 478p to 510p yesterday, removing the discount to its rivals. Finncap said the AIM-quoted company’s half-year results showed that existing stores were filling up and that newly opened ones were trading well “against the backdrop of structural undersupply of self-storage in the UK, and support by a strong balance sheet”. The shares, which rallied into the trading update and are close to record highs, dipped 30p to 435p.
