UBS drops Computacenter to 'sell' following recent re-rating

Analysts at UBS downgraded their rating on Computacenter from 'neutral' to 'sell' on Thursday, stating the group's valuation following its recent re-rating was "challenging".

While the Swiss broker upped its price target on the firm from 1,485.0p to 1,625.0p, the analysts said that with the shares already trading at a 19x their estimated 2020 price-to-earnings ratio, following a 76% jump in the share price in 2019, they believed the risk/reward scenario for the shares was "unattractive at current levels".

UBS highlighted that strength in its public sector segment had buoyed total sales at Computacenter through the end of 2019, as had improvements in its US operations, where cloud-related sales accelerated, and further progress in settling several of 2018's problem contracts in Germany.

"We are now looking for pre-tax profit of £143m (was £134m) and £146m (was £137m) in 2020. A positive trading update in December sets the scene for a solid trading update on 23 January," it said.

However, with Germany and the UK accounting for over 80.0% of profits and both economies facing challenges in 2020, according to UBS, the analysts said they had identified risks to continued growth in 2020.

"We see our estimate of just 3% sales and EPS growth in 2020 as unlikely to support such enthusiasm. This estimate reflects an expected weaker macro environment especially in Germany and the UK, and some likely easing of Windows 10 related demand.

"Computacenter is a good business, but we see an unattractive risk-reward following the recent re-rating. Sell."