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Softcat heads for ‘above expectation’ year

Firm’s third-quarter trading update should please investors that are looking to the channel player to continue growth

Softcat has given investors some cheer, indicating in a trading update that it expects its full-year results to exceed expectations.

The channel player never seems to disappoint the investment community and is on track to deliver again with its latest update, for the third quarter ending 30 April, sounding a positive note.

The firm indicated to the markets that it had been able to build on strong momentum in the first half with a decent performance in its fiscal Q3 with “double‐digit year‐on‐year growth in revenue, gross profit and operating profit”.

That first half saw Softcat deliver increased revenues of 10% to £577m, gross profits improving by 20% to £134.5m and operating profits up 41% to £57.1m, for the six months ended 31 January.

The Q3 trading update also indicated that it had seen growth coming more broadly across the business, which was a welcome change from H1.

“Run‐rate transaction volumes strengthened in the latest period and cash collections and conversion have remained good, in line with normal trends,” said the firm. “Consequently, the board anticipates that results for the full year ending 31 July 2021 will be ahead of expectations.”

Looking into a crystal ball is always slightly dangerous, but Softcat was prepared to discuss what could be coming in FY22 and prepared investors for some potential challenges.

The channel player warned that some of the cost savings that had been made during the coronavirus pandemic would naturally be reversed as staff returned to offices and travel increased to customer sites and events. Secondly, Softcat revealed that FY21 contained a number of the biggest deals the firm has ever made, which were one-offs and would skew the numbers when it came to future year-on-year comparisons.

“These two factors combine to contribute c.£12m to EBIT in FY21, the majority of which was seen in the first half,” the firm said. “We remain confident of the road ahead and expect to see further growth on normalised EBIT in FY22, likely to result in reported EBIT being broadly in line with the upgraded performance now anticipated for FY21.”

Softcat recently pledged to improve its green credentials and move to electric vehicles and encourage working from home, so there is a chance that some of those efforts could offset some of its increased T&E expenses.

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