Investment: Compel pushes wrong buttons

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The Independent Online
Compel pushes wrong buttons

THE CITY has taken an interest in Compel, the computer distributor, ever since its larger rival, Computacenter, joined the market earlier this year. However, as Computacenter has fallen from favour - the shares have lost a quarter of their value since flotation - Compel has suffered too.

The concern is over hardware. Both companies pride themselves on their service operations, but they make a large chunk of revenues from reselling personal computers. Both refuse to break down their sales figures to show the services/hardware split, arguing that the distinction is irrelevant: if they did not sell services they would not generate hardware sales - and vice versa.

This is true, but it misses the point. Compel and Computacenter can control the cost of their services. They cannot, however, control the price of personal computers. And if PC prices plunge unexpectedly, revenues and profits will be hit.

For now, all is well. In the year to June, Compel's operating profits from continuing operations jumped 65 per cent to pounds 8.8m on a similar increase in revenues. Acquisitions added another pounds 0.9m of profits on pounds 21.7m of sales.

Moves by companies to centralise their PC support operations and hand them over to third-party suppliers are good news for Compel - it recently won a huge contract to supply the BBC. The company is also reducing its exposure to falling hardware prices by signing contracts at a fixed fee per desktop - including hardware and software. But these contracts are still relatively uncommon.

Compel will undoubtedly continue to grow. Brokers forecast profits of pounds 10.7m in the coming year, and a forward earnings multiple of 14 is hardly demanding in such a highly-rated sector. However, as long as investors have to guess about Compel's hardware exposure the shares - up 6.5p to 359p yesterday - are unlikely to get the rerating they probably deserve.