IT infrastructure products specialist Softcat’s (SCT) cautious outlook has unnerved investors, causing the shares to fall 11.6% to 600p.
The company says it is confident of meeting expectations for the year but has 'some important months ahead.’
‘This almost amounts to a mild profit warning and for a company like Softcat, which was previously on a lofty valuation, even the possibility of a worse than expected performance is enough to drive investors to the exit door,’ comments AJ Bell investment director Russ Mould.
Softcat currently trades on forecast 25.7 times earnings per share in the year to 31 July 2018, which is down from 29.9-times on 20 March.
Gross profit margin also dipped 0.4% to 15.8% in the six months to 31 January.
Investors may be worried about further pressures on profit margins, but Softcat aims to tackle this via ongoing staff training to keep up with new vendor programmes.
Up to 2020, Softcat is expected to deliver annual growth of high single-digits for sales and pre-tax profit, but broker Berenberg believes it can beat these forecasts due to strong demand.
Berenberg analyst Benjamin May recently upgraded the stock to ‘buy’ after it exceeded operating profit growth expectations and noted another special dividend could be on the cards.
Sales surged 24.9% to £472.8m and operating profit rose 15.4% to £24.1m in the six months to 31 January.
Customers at Softcat are also parting with more cash as gross profit per customer has increased 15.3%, driven by cross-selling a wider product range.
