Berenberg upgrades Softcat to 'buy', hikes target price

(Sharecast News) - Analysts at Berenberg upgraded software firm Softcat from 'hold' to 'buy' on Friday and bumped its target price on the stock from 1,600.0p to 1,900.0p as it argued a recent sell-off had provided an attractive entry point. Berenberg said the upgrade was on the basis of Softcat's "continued strong operational performance", as well as its "consistent ability" to beat market expectations and the 15% selloff in its shares over the past two weeks.

The German bank said its view on the company has always been positive. However, it also noted that Softcat's shares now looked "more attractively valued" than at the time of its re-initiation in October 2024, when it traded on a 26.6x one-year forward price-to-earnings ratio and a 3.4% free cash flow yield, relative to our expectation of a 7% FY23/26 earnings per share compound annual growth rate. Today, Berenberg said, Softcat trades on a 22.6x FY26 price-to-earnings relative and a 4.0% free cash flow yield, relative to our expectation of a 10% FY24/26 earnings per share compound annual growth rate.

"Softcat has grown at a double-digit yoy rate since our initiation, with the company delivering multiple profit upgrades. However, the shares are broadly back to where they were at our initiation, following the sell-off on the day of Bytes' AGM trading statement (2 July), meaning they are materially better value on both an absolute and a relative basis," said Berenberg.

"While some of the strong FY25 performance was due to several large deals, performance continues to be broad-based across technology areas and customer segments. In our view, Softcat is the most resilient UK VAR and the one with the best chance of upgrading expectations over the medium term, as it continues to navigate the challenging macroeconomic environment of the past several years admirably."

Reporting by Iain Gilbert at Sharecast.com