Weakness in its eurozone business has hit IT equipment and services group Computacenter just weeks after it tried to reassure investors about a number of problem contracts in Germany.
The company said it would only make "modest progress" in 2013 compared to last year, which analysts said was tantamount to a profits warning.
It said the majority of its problem contracts in Germany had so far responded to action taken by the company but three had failed to do so, which could lead to an increased provision during the year. It expects to complete discussions with commercial counterparties by August.
In France, difficult economic conditions mean its subsidiary is performing below previous expectations, broadly breaking even.
The disappointing update has sent the company's shares tumbling 68.5p to 469.5p, a near 13% decline. Julian Yates at Investec said:
While the UK is making good progress, France is trading below expectations and trading on the three German contracts is still difficult and a provision may need to be taken. We downgrade 2013 profits by 11% which is disappointing, having expected the worst of the 202 contract issues were factored into our numbers and saw France as stable. The progress in the UK is being hindered by these headwinds. Cash of £98m reflects seasonality. We expect the stock to fall today, but retain buy with a 480p target price.
Credit Suisse analysts also stuck to their outperform guns despite the statement:
Computacenter has announced a frustrating first quarter update, which amounts to a profits warning for 2013. Overall, management now only expects to make modest year-on-year progress, which leads us to downgrade2013 and 2014 forecasts by 9% and 5% respectively.
Having provided some reassurance with the 2012 results a month ago on progress in Germany, three contracts continue to cause ongoing problems. Meanwhile, economic weakness in France means that higher margin professional services are weak such that the region is operating at break-even levels. The one area of robust trading appears to be the UK, although tough comps mask the strength of underlying momentum.
It is also worth noting that Computacenter is cash generative. We estimate that Computacenter could return around £75m every three years, which would provide an equivalent return of 3% per annum. In addition to the normal dividend, we think this could imply around 6% annual returns. While the share price will obviously be weak on the back of the statement, we think this cash generation provides an attractive proposition which should limit the scope for material share price falls.
