Softcat (LSE:SCT) PLC’s exposure to small and medium-sized enterprises (SMEs) presents enhanced insolvency risks, according to analysts at UBS, who downgraded the software firm's rating to 'sell' from 'neutral' and cut its target price to 1,070p from 1,220p.
Analysts at the Swiss investment bank believe Softcat’s exposure to SMEs, which account for 47% of its gross invoiced income, presents enhanced insolvency risks.
Insolvencies among SMEs are rising and may continue to rise as macroeconomic conditions continue to deteriorate, the analysts noted.
Vendor partners, they said, have already downgraded sales estimates, which point to a slowdown in demand that Softcat is not immune to.
“Softcat also faces a higher cost base due to the return of T&E (Travel and entertainment) expense and higher personnel cost,” the UBS analysts added.
They also forecast risks in the switch from consumers to the cloud and cloud-based marketplaces where customers can purchase software directly.
Gross profit growth forecasts have therefore been scaled back by 1% to 2% over the next three years on the back of macro deterioration and lower business confidence, the UBS analysts said.
Softcat shares were down 4.8% to 1,185p in afternoon trading.