LONDON -- I've been tempted by IT infrastructure services company Computacenter's
The shares have been knocked back by a profit warning delivered on June 14, that's why. But, in my view, this is one of the better types of profit warnings. Let me explain.
Investing in growth
Essentially, the firm needs to invest an extra 7 million pounds in resources in order to service new business during 2012. That means recruiting and training about 700 new employees and increasing spending on systems infrastructure, too. There's also the possibility of a further 3 million pound hit to profits if the euro remains weak against sterling.
It's a common dilemma: Revenue rises, but so do costs, and the hurdle of breakeven and profit gets ever higher.
First-half revenue growth is running at around 15%, up from 11% in the first quarter, indicating potential benefit from the planned investment if cash generation eventually results. And Computacenter's past record on the execution of its operations is good. Perhaps it will repeat the trick.
An 88% dividend increase in four years of trading is impressive, especially when supported by rising revenue and profits handily converted to cash.
If that dividend is to keep growing, Computacenter's business has to keep expanding, too, and that means further investment, as we are seeing now.
|
Year |
Revenue (millions of pounds) |
Net Cash From Operations (millions of pounds) |
Net Profit (millions of pounds) |
Diluted EPS (pence) |
Dividend (pence) |
|---|---|---|---|---|---|
|
2007 |
2,379 |
32 |
29 |
18.2 |
8 |
|
2008 |
2,560 |
85 |
37 |
24.2 |
8.2 |
|
2009 |
2,503 |
173 |
38 |
24.9 |
11 |
|
2010 |
2,676 |
123 |
50 |
32.6 |
13.2 |
|
2011 |
2,852 |
102 |
61 |
39.3 |
15 |
Valuation now
At a share price of 295 pence (with a market cap of 454 million pounds), Computacenter is trading on a forward dividend yield of about 5.7%, more than twice covered by expected earnings for 2012. City analysts following the firm are expecting earnings to come in flat this year, which puts the shares on a forward multiple of 7.5 for 2012, falling to 6.7 in 2013 if the expected 13% earnings growth comes in.
Regardless of underlying business performance, sentiment on these shares is certainly cyclical, and the share price was as low as about 75 pence in 2008. The shares have been falling, so I've taken a small position for now and may add to it if the fundamentals and the shares do as well as I hope.
We'll learn more with a trading statement due on July 17. In the meantime, why not check out these free Motley Fool reports for more share ideas: "Top Sectors for 2012," which identifies areas of the stock market that our analysts think will do well, and "8 Shares Held By Britain's Super Investor," which looks at some of the shares held by legendary British fund manager Neil Woodford.
Want to learn more about shares, but not sure where to start? Download our latest guide -- "What Every New Investor Needs To Know" -- it's free. The Motley Fool is helping Britain invest. Better.
Further investment opportunities from Kevin Godbold:
