UBS has upgraded Softcat PLC (LSE:SCT), the IT reseller, from 'sell' to 'neutral', but cut its target price to 1,225p from 1,450p, arguing that a sharp decline in the shares has brought the risk/reward into balance.
In early afternoon trading, the shares were up 1.1% at 1,154p.
Analysts at the Swiss bank said Softcat's shares had fallen roughly 40% from their June 2025 peak, leaving the stock trading at around 15 times forward earnings against a historical average of 25 times.
It said it no longer thought it appropriate to anchor valuations to historical averages, given uncertainty over the long-term impact of artificial intelligence on software resellers.
UBS argued that Softcat was relatively insulated from AI disruption compared with pure software companies, given its lower exposure to software-as-a-service applications, but warned that the company was poorly positioned to benefit from the fastest-growing part of the AI market.
The analysts said many AI-native vendors, such as OpenAI and Cursor, sell directly to customers or through large cloud providers rather than through resellers such as Softcat, meaning an increasing share of technology budgets was bypassing the company.
The reduced target price of 1,225p reflects a 15% premium to Softcat's peer group, down from a 20% premium previously, and equates to 17 times UBS's 2026 earnings estimate.
UBS said it expected Softcat's half-year results, due on 18 March, to beat market expectations, with gross profit growth of 16% against a consensus forecast of 14%, driven by large data centre deals and strong UK technology spending.