Growth Priced To Go

Published in Company Comment on 17 November 2011

Lock in a growing 4.4% yield with this mid-cap.

It's always encouraging to find a company with a track record of growth through the credit crunch and recession. If you add a recent bullish trading statement to the mix, plus share-price weakness due to Europe's convulsions as well, what you end up with is a potentially attractive entry price for FTSE 250 member Computacenter (LSE: CCC).

A good track record

The company describes itself as "Europe's leading independent provider of IT infrastructure services", and business has been good over the last few years as shown by its financial performance:

 20062007200820092010
Revenue (£m)2,2702,3792,5602,5032,676
Net profit (£m)1929373850
Net cash from operations (£m)133284173123
Diluted earnings per share (p)10.918.224.224.932.6
Dividend per share (p)7.58.08.21113.2

Cash flow, revenue and profit growth appears to back up that 76% increase to the dividend during the period -- a great foundation. Meanwhile, some £64m of debt shown on the most recent balance sheet throws up a gross gearing figure of around 17%, and is offset by almost twice the amount of cash that the company keeps in the bank.

A fair price for growth

According to analyst estimates, the recent 370p share price puts the company on a forward dividend yield of around 4.4%, covered about two-and-a-half times by earnings. The forward price to earnings ratio is about 9 for roughly 10% earnings per share growth. For what it is worth, all seven City brokers following the company have the share as a 'strong buy'.

Latest guidance from Computacenter came with a trading statement on 14 October. The tone was bullish, with the directors confident that 2011 would deliver record growth rates in its contractual-services division, which ought to underpin growth in the years ahead.

Computacenter derives 47% of its revenues from the UK, 38% from Germany and the rest from France and the Benelux countries. With just over half of group sales from mainland Europe then, it's natural for investors to become a little unsettled given recent macro events. Indeed, the company also names the UK government as its largest customer, providing around 12% of total revenues, which could be another source of worry.

Bottom line

I think the current valuation presents an opportunity for investors to lock in a decent, well-covered and growing yield from a company whose business has grown spectacularly since its formation in 1981. Why not take a look... then tell me what I've missed in the comment boxes below!

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Comments

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dpeddlar 07 Dec 2011 , 12:58pm

Thanks for identifying this opportunity, I have invested as the above makes sense to me.

KevinGodbold 26 Dec 2011 , 7:01pm

You're welcome, dpeddlar.

Good luck with your investment and happy New Year.

Best wishes,

Kevin

dpeddlar 18 Jan 2012 , 12:52pm

Hi Kevin,

My purchased price of 3.49 at the end of November looks decent with the shares currently trading at 3.75, I plan to hold them for 5 - 10 years but nice to see a gain in such a short time.

Thanks again

David

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