Computacenter PLC (LON:CCC) has been downgraded to ‘Underweight’ from ‘Equal Weight’ by investment bank Barclays PLC (LON:BARC) on valuation grounds following strong share performance after a first quarter trading update.
Analysts at the British investment bank said the FTSE 250 computer services company had seen its share price increase 26% in the second quarter driven partly by better-than-expected first quarter results, although they argued that “the revenue performance was largely driven by lower margin supply chain revenue”.
They added that the revenue was also driven entirely by the product side of the business, while the services side remained flat in constant currency by declining 7% in the UK while increasing 7% in Germany.
However, Barclays admitted that “the outlook read positively and talked to better than expected performance and another year of anticipated profit growth. The supply chain performance was clearly ahead of our expectation, but there will continue to be some questioning over the UK services trends, the most important part of the business.”
The bank also raised its target price for the firm to 1,100p from 1,080p while forecasting 3% growth in services revenue and an 18% increase in supply chain in the first half of the year, leading to overall revenue growth of 13%. They also modelled a 15% increase in operating profit to £47.5mln, representing a margin of 2.4%, unchanged on last year.
Analysts commented: “Following the strong share performance last and this year, the stock now trades at over 18x our cash adjusted FY19E PE, a price we deem too expensive for a stock with this growth profile. We therefore downgrade Computacenter to Underweight on valuation”.
In mid-morning trading, Computacenter shares were up 0.7% at 1,432p.