Computacenter PLC (LON:CCC) is a “defensive business” for these coronavirus-stricken times, analysts at UBS said, with the business benefiting from increased demand from companies shifting to more remote working.
UBS upgraded its rating on the FTSE 250 company’s shares, removing its ‘sell’ rating and switching to ‘neutral’, but cutting its price target from 1,625p to 1,500p.
Highlighting the IT services group’s solid business foundations, the UBS analysts noted that there have been 15 years of uninterrupted earnings growth, even through the financial crisis.
In 2009, Computacenter “moved rapidly to manage costs and protect profits”, with a business model that uses subcontractors in many of the more cyclical project areas while the majority of profits come from long-term managed services contracts.
A trading update last week showed solid sales January and February, while March looked to be "shaping-up to be good for product sales especially laptops as customers seek to put into action their business continuity plans".
With 135 customer relationships £1m-plus and just 300 enterprise customers in Europe and the US accounting for virtually all of its profits today, the analysts pointed out that Computacenter "has been able already to do some detailed analysis of its contractual risks around potentially losing access to customer sites or SLA risks if it experiences disruption in its offshore support centres".
"It sees this as manageable and as yet has not experienced any significant issues in delivering its services."
To be prudent, UBS is forecasting an earnings decline in 2020 from the potential disruption caused by the coronavirus on demand and sales cycles and subsequent impact from a weaker economy.
“However, the shares appear to adequately price this in at a 6% FCF yield and with a solid balance sheet,” the analysts said.