- Tech firm lowers guidance
- Blames ‘challenging’ market
- Pain partly self-inflicted
Shares in FTSE 250 value-added software and service reseller Bytes Technology Group (BYIT) were mauled after the firm warned its performance in the first few months of its financial year had been beset by ‘challenging’ market conditions.
The stock price fell as much as 140p or 27% to 369p, before leveling out at 386p for a loss of 122p or 24%, while peers Computacenter (CCC) and Softcat (SCT) saw their shares sold off by 6% and 8% in sympathy.
MULTIPLE HEADWINDS
The Surrey-based firm, whose financial year starts in March, said in a statement ahead of its AGM (annual general meeting) the difficult macroeconomic backdrop meant some of its corporate customers had put off buying decisions.
The firm also flagged the impact of changes to Microsoft’s (MSFT:NASDAQ) enterprise incentives, which are weighted more to the first half of its financial year due to high levels of renewals in March and April, around the public sector year-end, and June which is Microsoft’s year-end.
Meanwhile, the benefits from services growth, where profit is spread over the life of the contract, builds up during the year.
Finally, the firm said the reorganisation of its sales team from a generalist model to a more specialised approach had resulted in ‘a longer than expected readjustment period’, impacting revenue generation.
As a result, Bytes now sees flat first-half gross profit and slightly lower first-half operating profit, with both expected to ‘normalise’ during the second half.
‘In recent weeks, we've navigated a more challenging macro environment, compounded by the near-term effect of transforming our corporate sales team,’ commented chief executive Sam Mudd.
‘While this has affected trading, our value proposition remains strong. We're seeing continued engagement, a healthy pipeline and remain confident that as these sales team changes bed in, we will be a stronger business, better aligned to meeting our customer needs and drive sustainable growth.’
EXPERT VIEW
Analyst Martin O’Sullivan at Shore Capital suggested management’s guidance for marginally lower first-half EBIT followed by more normalised growth in the second half pointed to low-to-mid single digit growth for the full year against the firm’s previous guidance of double-digit growth.
‘While near-term trading conditions remain mixed, with some customers delaying projects and decision-making cycles lengthening, we believe Bytes has a strong customer proposition and remains well positioned for longer-term growth, underpinned by structural demand for AI, cloud, and cybersecurity services, its strategic partnership with Microsoft, and a steadily expanding customer base,’ added O’Sullivan.
However, the Shore view was reduced from Buy to Hold while O’Sullivan and the team review their forecasts and fair value assumption.
