Analysts ripped up their Softcat (SCT) profit forecasts for the next three years after the company massively beat first-half operating profit expectations. ‘Earnings before interest and tax came in 20% ahead of expectations despite a positive update in January and forecasts having been upgraded then,’ said Numis analyst Tintin Stormont.
EBIT is another way of saying operating profit, by and large.
But the Numis number cruncher did not stop at 2021, rethinking and raising her EBIT and gross profit estimates right out to the full year to 31 July 2023.
‘We have upgraded our full year 2021 to 2023 EBIT estimates by 9%/8%/7% which reflects 14.8% gross profit growth in 2021 and 12% in 2022 and 2023,’ Stormont said. However, the analyst also flagged an anticipated rise in running costs, ‘reflecting ongoing investments and normalisation of Covid-19 impacts.’
There was also raised dividend forecasts, both for the standard annual payout but also for a special cash return, something that Softcat has done more than once in the past when it has found its bank balance too fat.
The announcement saw Softcat stock top the FTSE 350 leaderboard on Wednesday after jumping 14.5% to £17.85.
Shares reminded readers of the buying opportunity in November at £11.53 after a spell of share price weakness.
REMOTE WORKING SURGE
In the six months to 31 January 2021, revenue jumped 10% to £577 million while operating profit jumped 41% to £57.1 million, helped by cost savings. The interim dividend was hiked 18.5% to 6.4p per share and will be paid in May.
The customer base rose 1.5% to 9,600 despite the move to remote working, with public sector remaining strong and corporate demand continuing to gradually recover after a dip in spring 2020.
The Marlow-based FTSE 250 member sells a wide selection of third party software to small and medium-sized companies and public sector organisations, plus PCs and smartphones. It then offers deep technology expertise and advice on top.
LIFTING THE IT BURDEN
Softcat effectively removes the burden of customers managing multiple IT products and service relationships by using it as a trusted point of contact. That’s an immensely valuable service, especially in an increasingly digitised world.
The company has a string of industry accreditations with many blue-chip household software suppliers, such as Microsoft, VMWare, Cisco Systems, IBM, Dell-EMC, Adobe, Mimecast, NetApp and many others.
Management remained typically restrained when talking about the pace of future growth, a trait that cements its under-promise, outperform reputation.
‘Softcat has the best track record of delivery and continues to show why it deserves its premium rating,’ said Numis’ Stormont. ‘We believe our estimates remain prudent and its broader execution capabilities will allow it to continue gaining share.’
