Computacenter H1 revenue up 29% on U.S. AI demand, expects higher full-year profit

Computacenter reported robust H1 2025 revenue growth of 28.5% to £3.99bn, primarily fueled by a 38% surge in Technology Sourcing, especially from strong AI-related infrastructure demand in North America, which significantly boosted regional operating profit. Despite this top-line expansion and a 23.7% increase in order backlog, gross margin narrowed to 12.6% and adjusted profit before tax declined 6.5% to £81.5m, reflecting higher volumes of lower-margin business and weakness in European public sectors. The company anticipates full-year adjusted operating profit to exceed 2024, driven by continued North American momentum, with analysts noting a potential end to downgrade pressure and expected valuation unwinding as momentum rebuilds.

Analysis

Computacenter's first-half 2025 results present a dichotomy between robust top-line growth and contracting profitability. Group revenue surged 28.5% year-over-year to £3.99bn, propelled by a 38% jump in Technology Sourcing, which benefited from strong demand for AI-related infrastructure. This growth was geographically concentrated, with North American operating profit nearly doubling to account for 44% of group earnings, while the U.K. business returned to growth with a 29% profit increase. However, this revenue expansion came at a cost, as gross margin narrowed significantly to 12.6% from 15.2% due to a mix shift towards lower-margin business. Consequently, adjusted profit before tax fell 6.5% to £81.5m and adjusted diluted EPS slipped to 52.5p. The balance sheet also weakened, with net funds falling from £287.8m to £115.4m after heavy working capital outflows. Despite these pressures, the forward-looking outlook is constructive, supported by a 23.7% year-on-year increase in the order backlog and guidance for full-year adjusted operating profit to exceed 2024 levels, leading analysts to suggest that recent downgrade pressure may be ending, potentially allowing the stock's valuation discount to unwind as momentum rebuilds.

Key Decisions for Investors

• Investors with a bullish thesis on AI infrastructure spending should consider the strong revenue growth and record North American performance as evidence of successful market share capture, potentially looking past the near-term margin erosion.
• It is critical to monitor gross margin trends in the second half, as an inability to improve profitability on the back of the strong £2.2bn order backlog would be a significant red flag.
• Watch for any signs of the guided recovery in German public sector activity, as a turnaround in lagging European markets would be a key catalyst for re-rating and would complement the strong North American momentum.
• Given the sharp decline in net funds due to working capital outflows, investors should scrutinize the company's cash conversion cycle and balance sheet management in upcoming reporting periods.