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Softcat earns top billing as investors recognise the opportunity

Softcat shares have risen by a third to 692p since strong interim numbers were flagged in February and are currently close to an all-time high
IT
Anything you need from Softcat

Softcat PLC (LON:SCT) is a middleman and proud of it.

"We supply anything and everything for an IT infrastructure platform", says Graham Charlton, the company’s chief financial officer.

WATCH: Softcat's people first approach 'proving a winner' 

In its early stages as a listed company late in 2015 meant that Softcat was grouped among the IT equipment re-sellers, but perceptions have changed as the company has consistently exceeded expectations.

Softcat shares have risen by a third to 689p since strong interim numbers were flagged in February and are currently close to an all-time high with a punchy market value of £1.36bn.

A sales operation

Softcat is first and foremost a sales operation, says Charlton and customers relationships are the key to its success.

While there are about 200 companies in the UK overall supplying IT products, the differentiator is Softcat's quality of advice and human relationship factor.

“Everyone knows what we do but it is hard to replicate.”

The original market was the IT needs of the small and medium-sized company sector.

It is still number one in this SME market but recently has shifted up the value chain to include larger enterprises in both the public and private sectors.

Once you get above 50 employees that is where we come in, says Charlton, which amounts to around 90,000 companies and organisations in the UK.

Number two overall

Though number two overall, it still only has a 6% share, which Charlton says leaves plenty of opportunity to grow further.

Softcat has agreements with around 2,000 vendors, groups such as Cisco, Microsoft, Dell, and it is the ability to meet the needs of both customers and suppliers that is the heart of its business

“Vendors can’t build a sales force to reach 90,000 customers in the UK, while customers can have up to 90 IT vendors.

“We solve both problems as the middleman not just by re-selling but offering advice and expertise.”

For example, as an alternative to just placing an order for twenty servers customers now ask how to handle storage requirements.

"We will offer options such as the cloud, new servers, renting data centre space or a hybrid solution."

Technical investment

Hence the investment in new technical staff and a heavy focus on attracting the right salespeople.

Every year, Softcat takes on up to 200 graduates as possible account managers.

New recruits are told at the start they have two years to shape up and build links with their own customers.

It’s a tough school, Charlton admits, and only about half make it through the process but one of the reasons why Softcat has been successful has been the strong links it forges with clients.

Customers rarely leave if they have been with the group for two years and to build on that strength the plan in recent years has been to invest heavily to add technical nous and sales depth.

Staff numbers have risen from 750 to 1,150 over the past three years and the benefits of these extra bodies started to show through in this year’s halfway numbers with sales up 25% at £473mln and profits by 15% at £24.1mln.

Some 600 new customers were added in the period while gross profit per customer grew by more than 15%.

Execute well

Graeme Watt also became chief executive while founder Martin Hellawell stepped up to non-executive chairman, but given how well the strategy is working currently a change in style seems unlikely.

“We’ve invested in the right things over a sustained period," said Charlton.

“The market opportunity is there for the taking, all we have to do is execute well on it.”

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