The United Kingdom's top value-added resellers (VARs) are at a crossroads, grappling with slower technology spending growth and a resurfacing trend in cost optimisation.
Despite these challenges, companies like Bytes Technology Group PLC (LSE:BYIT, JSE:BYI), Computacenter PLC (LSE:CCC), and Softcat (LSE:SCT) PLC have shown resilience and adaptability.
According to a recent research note by HSBC, these VARs are well positioned to capitalise on long-term opportunities in the technology sector.
State of VARs
Value-added resellers operate as a crucial link in the information technology (IT) ecosystem, procuring products from original equipment manufacturers (OEMs), software publishers and cloud providers.
They offer a cost-effective distribution channel and are responsible for nearly two-thirds of UK sales in the technology sector.
HSBC notes that these VARs have demonstrated their ability to take market share and are seen as vendor- and technology-agnostic ways to engage with the technology sector.
Which to 'buy'?
HSBC has initiated coverage with a 'buy' rating on Bytes Technology (target price: 625p) and Computacenter (target price: 3,015p), and a 'hold' on Softcat (LSE:SCT) (target price: 1,580p).
The research indicates that the aggregate gross invoiced income (GII) for these companies has grown at a compound annual growth rate (CAGR) of 21% over the last five years, outperforming the top 100 VARs in the UK.
Challenges and opportunities
However, the sector faces headwinds. The report suggests that technology spending growth is likely to be slower than pre-pandemic levels.
Despite this, HSBC believes that overall IT spending will outpace general economic growth, fuelled by new technologies like artificial intelligence (AI), hybrid and cloud computing and a growing demand for security tools.
While the near-term outlook for VARs may appear challenging, the long-term prospects remain promising.
The VAR market in the UK is highly fragmented, offering significant opportunities for market share gains. As companies continue to invest in digital transformation, VARs like Bytes Technology, Computacenter and Softcat are well placed to navigate the evolving landscape.