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- As per the industry experts, the job vacancies in the UK's financial sector declined by 60 percent, in the quarter to end-June.
- FTSE 100 dropped over 23.5 points and was trading at 6,268.14 (as on 16 July 2020, before the market close at 3.32 PM GMT+1) due to rising apprehensions over escalating coronavirus cases. Meanwhile, Britain’s employment data unveiled that 649,000 people have lost their jobs since March.
- Softcat PLC's customer base grew by 4.2 percent year on year in H1 FY2020.
- The external borrowing of Softcat PLC remained zero on the balance sheet, thus providing a strong liquidity position.
Given the above market conditions, we will review a technology stock - Softcat PLC (LON:SCT). As on 16 July 2020, before the market close at 9.44 AM GMT+1), the stock price of SCT was down by 0.88 percent, against the previous day closing. Let's walk through their financial and operational updates to understand the stock better.
Softcat PLC (LON:SCT) – Paid the interim dividend of 5.4 pence per share for H1 FY2020
Softcat PLC is a reseller of infrastructure technology solutions in the UK and Ireland. The Company is engaged in providing and supporting a range of technology services to corporate and public sectors. Softcat has a customer base of 9,500 accounts. The Company employs around 1,483 people and works with over 200 vendors, including Dell, Cisco, Lenovo, HP, VMWare, among others. The Group bifurcates the revenue into three types of products – Software, Hardware, and Services. The Company is included in the FTSE-250 index of the London Stock Exchange.
Upcoming Event: On 20 October 2020, the Company is expected to release the preliminary results for FY20 (ending 31 July 2020).
H1 FY2020 results (ended 31 January 2020) as reported on 17 March 2020
The Company reported revenue of £524.1 million, which grew by 20.8 percent year on year from £434.0 million in H1 FY19. The gross invoiced income drove the revenue of the Company, which grew by 19.7 percent year on year to £727.7 million. The gross profit and operating profit were £111.7 million and £40.5 million, which improved year on year by 18.0 percent and 19.5 percent, respectively. The cash from operations was £24.9 million with cash conversion of 100 percent. Softcat paid the interim dividend of 5.4 pence per share for H1 FY20. As on 31 January 2020, the Company had cash of £49.4 million and the external borrowing on the balance sheet remained zero. The Software segment generated revenue of £252.9 million, whereas Hardware and Services revenue was £218.8 million and £52.4 million, respectively. In H1 FY20, the customer base increased by 4.2 percent in addition to the average gross profit growth of 12.2 percent per customer. In Q3 FY20, the business performance was as per expectation amid the pandemic as the revenue, and gross profit grew. The invoiced collection from the customers was steady. The Company has moved to a remote working model. Further, the Group reported that growth remained broad-based and entirely organic, which was underpinned by double-digit expansion across all key customer and technologies segments.
H1 FY2020 Financial Summary
(Source: Company Website)
Share Price Performance Analysis
1-Year Chart as on July-16-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Softcat PLC 's shares were down by 0.26 percent against the previous day closing and trading at GBX 1,147.00 (as on 16 July 2020, before the market close at 12.50 PM GMT+1). Stock 52-week High and Low were GBX 1,289.00 and GBX 832.17, respectively. The Group had a market capitalization of £2.26 billion.
Market Share Analysis
Considering the Softcat’s gross invoiced income in FY19, their market share was around 3.1 percent. Moreover, the current base of customers with 9,500 accounts represents 20 percent of the UK and Ireland’s target universe. In H1 FY20, the market conditions were reportedly strong, and the Company expected that the structural growth drivers would be continued in the medium term. The strong growth driver in the industry also holds the potential for further gains in the market share.
Business Outlook
Overall the second half of the financial year 2020 started well and there was no material impact over the business from the prevailing Covid-19 outbreak. However, the pandemic does create uncertainty for the remainder of FY20. The Company's key priority remains to acquire more new customers and selling additional services to existing customers. The Company is confident that with the robust liquidity, it is positioned to gain market share and achieve growth over the long-term. The growing demand for cybersecurity, mobility and cloud services are critical drivers for future growth. The Company is closely monitoring the Brexit deal and the impact over the future trade; Softcat is well prepared in advance to invest in opportunities to mitigate the business risk from the outcome of the agreement. Moreover, the Group considers ongoing investment in headcount and expanding multination capabilities as a significant element for growth strategy.
