RE: RNS11 Jul 2025 14:53
Investors' Chronicle July 10, 2025
Is Bytes Technology in value territory?
The IT reseller’s profit warning has shaken investors, but there are still pluses to its investment case
The question for investors is whether this is a cyclical problem, or something more structural.
Companies still need to update their software. This includes transferring on-premise data to the cloud, updating cyber security and potentially adopting artificial intelligence (AI) platforms such as Microsoft’s Copilot. In the short term, when macroeconomic conditions worsen, this investment can be put off, but this will create a need for catch-up spending further down the line.
Yates thinks the long-term growth drivers still exist and has kept Bytes on a positive rating. “In our view, the business remains a strong and attractive operation with material growth prospects ahead, once the macro abates and the group comes through this period of volatility,” he said.
A byte taken out
Rather than being a highly valued growth stock, Bytes has slipped into value territory.
This gives the management some margin for error. As the chart shows, after the share sell-off, its free cash flow yield has risen to nearly 8 per cent. It also has net cash of £70mn on its balance sheet, which gives it headroom while waiting for the market to bounce back.
Eventually, every business becomes cyclical. Up to this point, Bytes had shown more resilience than most, but it appears companies are now looking to save on their software investment.
Assuming there aren’t any deeper company-specific issues holding Bytes back, this could offer an opportunity to buy the stock on the cheap and wait for the cycle to turn.
https://www.investorschronicle.co.uk/content/6419583b-2a82-434d-93eb-49c8edb045cc
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