Investment column: More than a box-shifter

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The Independent Online
GIVEN British investors' current hunger for information technology stocks, Computacenter looks assured of a good reception when it joins the market later this month.

The mooted price range of pounds 0.9bn to pounds 1.1bn may look a hefty price to pay for a company which made post-tax profits of just pounds 31m in 1997. But it's a token of how rapidly valuations for British IT companies have soared in the past few months that a historical price/earnings multiple of between 30 and 37 begins to look like a bit of a bargain.

Is this reasonable for a company which some - harshly - classify as nothing more than a glorified box-shifter? Well, perhaps. It is true that Computacenter is essentially a distributor: it buys computer hardware and software from the likes of Compaq and Microsoft and sells this on to its clients.

This can be a volatile, low-margin business, but to lump Computacenter together with other distributors is to misunderstand the unique nature of its business. Essentially, the company has used its contact with customers as a supplier of kit to build up a sophisticated range of services. Customers - which include half the FTSE 100 index - now call on Computacenter to plan, requisition, implement, support and manage their computer networks. This one-stop shop approach accounts for the vast bulk of profits, and explains why it can sustain a gross profit margin of over 20 per cent.

Growing demand has helped Computacenter's profits to almost quadruple in the past three years. And given the continuing shift away from mainframe systems towards networks based on personal computers, that growth looks set to continue. Goldman Sachs, the investment bank which is managing the flotation, predicts post-tax profits of pounds 40m this year and annual growth of around 20 per cent thereafter.

All this makes Computacenter shares good value right up to the top of the share price range, set at 550p-670p. But don't chase them any higher.

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