Credit Suisse downgrades Softcat on valuation but says interims 'very strong'

CS cut the stock to 'neutral' from 'outperform' but lifted the price target to 700p from 600p following the company's "very strong" interim results earlier in the day.

The bank said all metrics look good, with broad-based contributors to growth, strong cash flow and a strong outlook. As a result, it upped its FY18 and FY19 earnings per share estimates by 4-5%, taking it towards consensus that upgraded on the period-end update.

"We have no operational concerns, but we believe the share price now reflects this positive outlook. Softcat now has broadly the same market cap as Computacenter and yet to December 18 we forecast operating profit of £60m for Softcat and £105m for Computacenter.

"We believe this highlights the future growth that is already reflected in the Softcat valuation. On valuation grounds alone, we downgrade our rating."

Softcat said earlier that in the six months to the end of January 2018, operating profit was up 15.4% to £24.1m on revenue of £472.8m, up 25% from the same period a year ago, with double-digit growth across all business lines and customer segments.

Adjusted diluted earnings per share were 19.5% higher at 10.4p and the interim dividend was bumped up to 3.3p a share from 2.9p in 2017.

At 1540 GMT, the shares were down 12% to 599p.