Bytes Technology shares plunged to their lowest level since early May on Thursday after the UK group signalled slower profit growth for the first four months of its current financial year.
In a statement released before its AGM on Thursday, the UK-based software, security, cloud and AI services specialist said it had continued to trade well against the backdrop of a competitive market environment, with good growth across its key financial performance metrics for the period.
But the market appeared unimpressed with an apparent downward trend, backed by the lower margin sales, and the shares were down 5.9% to R115.30 at 1.45pm on the JSE.
Percentage growth in both gross invoiced income and adjusted operating profit “has been comfortably in double digits”, Bytes said. Gross profit growth has been “in the high single digits” as a result of an increased weighting towards high volume, lower margin software wins in the period.
Still, investors have become accustomed to double-digit earnings growth. In the 2022 financial year gross profit was up 20%, with adjusted operating profit 23% higher. Similarly, 2023 gross profit rose 20.7% and operating profit 20.6%. In the year to end-February 2024, gross profit rose 12.5% to £145.8m.
Thursday’s statement may be perceived as a signal that the current full year’s results will show lower growth overall.
That view was reinforced by global investment bank Jefferies’ recent decision to cut its price target for Bytes due to a combination of delayed industry expectations, particularly regarding artificial intelligence (AI), slower growth projections, and staff losses.
Alex Nguyen, an equity analyst at Jefferies, has a hold rating on the stock with a price target now at 520p (about R121.10) a share, down from 560p.
“The overall performance of the business was again driven by strong and stable demand from both corporate and public sectors for our market-leading, supported and secure IT systems,” Bytes CEO Sam Mudd said.
“We remain confident that our continued strong vendor partnerships and first-rate client service position us well to achieve our strategic goals for the year.”
For the year ended February, the group reported double-digit growth and proposed a special dividend as it continues to benefit from strong demand for its services.
Gross invoiced income for the year ended February increased 26.7% to £1.8bn, compared with £1.4bn previously, which the group attributed to “strategically important” contracts secured in the public sector, most notably with the UK’s National Health Service, as well as continued demand from corporate customers.
Revenue was 12.3% higher at £207m for the period.
In the light of the company’s strong performance and cash generation, the board proposed a special dividend of 8.7p a share, equating to a total payout of £20.9m.
Mudd took over as CEO of Bytes in early May after the ousting of long-time boss Neil Murphy earlier in 2024 due to a share trading scandal.
In February the firm, which was spun out of Altron in 2020, said Murphy had notified the board he had made a number of trades in the company’s shares that had not been disclosed to it or the market, as required by listing rules.
With Jacqueline Mackenzie
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