Jefferies downgrades Softcat to 'underperform'

Jefferies thinks FY24 consensus estimates for Softcat look "reasonable" but noted that FY25-26 consensus of 12-13% underlying earnings growth was already ahead of the company's typical framework to target low double-digit gross profit growth and high single-digit EBIT growth.

"We think this puts downward pressure on consensus," said Jefferies.

The investment bank also noted that Softcat trades on one of the highest valuations in European tech, with valuations that were more consistent with roughly 20-25% EBIT growth.

"Given the forecast risk, this premium valuation looks exposed," said Jefferies. "We align DCF assumptions with the same metrics used at Bytes, leading us to downgrade our price target to 1,490.0p and move our rating to 'underperform'."

Reporting by Iain Gilbert at Sharecast.com