Berenberg downgrades Softcat, reiterates 'buy' on Computacenter

Berenberg downgraded its stance on IT infrastructure provider Softcat to ‘hold’ from ‘buy’ on Thursday as it highlighted an uncertain outlook.

The bank, which lifted its price target to 1,250p from 1,100p, said Softcat is a good business. It upgraded the shares to ‘buy’ in March, but said that after a 50% rally "the hype has perhaps surpassed reality".

While Softcat will likely beat consensus and Berenberg has lifted its estimates by almost 10%, it said the outlook for next year "is far more uncertain".

"There are also compelling reasons why Softcat’s set-up is less well suited to winning business in a pandemic versus some peers. Namely, it lacks internal services and system integration capabilities and does not have the same experience in dealing with large multi-national IT infrastructure designs that some peers have."

Berenberg said that in a period of uncertainty, customers want someone who can do it all and Softcat is lacking in some areas. As a result, large client and public sector contracts are more likely to go to peers such as Computacenter.

"With the headwind that will inevitably emerge in its SME business, we think now is the time to take the stock to hold."

The bank reiterated its ‘buy’ rating and 2,450p price target on Computacenter.

It noted that the company’s US and European peers have reported strong second-quarter numbers, confirming the bank’s view that being overweight large corporates and the public sector is the best position from a customer perspective.

"Equally, we have seen value-added service capabilities determine the growth rates of many of these businesses. In our view, Computacenter has the perfect offering and client set at this point to take market share," it said.

"Why the stock still trades on a 25% discount to European resellers is beyond us. It does, however, create one of the most compelling investment cases in our telecommunications, media and technology (TMT) universe."