Computacenter rallies on UBS upgrade to 'buy'

Computacenter rallied as UBS upgraded its stance on the stock to ‘buy’ from ‘neutral’ and upped the price target to 840p from 795p.

The Swiss bank said the company’s international business is underappreciated and cash returns are likely in 2017.

UBS noted the shares have corrected around 20% since Computacenter warned over its UK business at the start of the year.

After a disappointing first half and Capita’s profit warning in September, UBS reckons investor expectations are particularly low and sees room for outperformance.

“We believe the UK business has stabilised and our analysis shows that the structural backdrop favours a continued strong performance from the international divisions, relative to the UK. Recent sterling weakness will also benefit the international business.”

The bank said its ‘Evidence Lab’ survey of 301 IT buyers highlighted strong spending intentions in Germany and France relative to the UK in 2017, which it believes will underpin further growth in Computacenter's international business.

“Over half of profits will come from continental Europe this year, we expect, offering FX translation benefits to the group's bottom line too. We also expect cash returns of £125m (£100m return of value, £25m dividend) next year, putting Computacenter on a 15% cash return yield, cheap compared with history.”

At 1553 BST, the shares were up 5.2% to 742.50p.