Sign in Subscribe
Stock prices

Bytes Shares Fall 8% as Profit Dips and Microsoft Changes Bite

Strategic Insights

— 1 min read

Bytes Technology Group PLC, an IT services group, saw its shares drop 8% in early trading after it reported a decline in operating profit for the first half of the year. The company cited the impact of Microsoft's partner incentive changes and adjustments to its corporate sales structure as the main factors contributing to the decline. Despite this, Bytes remained optimistic about its prospects, citing strong demand for cloud, cyber security, and AI services, and a healthy order pipeline.

Key Takeaways:

  • Bytes' operating profit declined 7% to £33.1 million for the six months to 31 August, with gross profit remaining flat at £82.4 million.
  • Revenue rose 2.5% to £108 million, supported by a 9% increase in gross invoiced income.
  • The company's services gross profit rose more than 40%, offsetting a decline in software margins linked to Microsoft's changes.
  • Bytes' shares fell 8% in early trading, with a 32p drop to £380p, as investors reacted to the disappointing results.
  • The company remains on track to meet full-year expectations, despite the challenges faced in the first half.
  • Bytes is benefiting from strong demand for cloud, cyber security, and AI services, with a healthy order pipeline and rising cash holdings.
  • The company's restructured sales teams are expected to settle and drive demand for IT services in the second half.
  • Rival Softcat achieved 23% gross profit growth in a similar period, highlighting the valuation discount on Bytes' shares.
  • Panmure Liberum noted that the first half was more affected by Microsoft's public sector rebate overhaul and the reshuffling of roughly 750 corporate accounts.

Statistics:

  • Operating profit: £33.1 million (down 7% from previous period)
  • Gross profit: £82.4 million (flat compared to previous period)
  • Revenue: £108 million (up 2.5% from previous period)
  • Gross invoiced income: 9% increase
  • Services gross profit: more than 40% increase
  • Cash holdings: £82 million (up from previous period)
  • Revenue growth: 2.5% year-over-year
  • Operating profit growth: -7% year-over-year
  • Gross profit growth: 0% year-over-year

Sources:

  • "Bytes shares fall 8% after Microsoft changes bite" (The Guardian, September 2023)
  • "Bytes Technology Group PLC: Interim Results 2023" (Bytes Technology Group PLC, 31 August 2023)
  • "Bytes Technology Group PLC: 2023 Interim Results Presentation" (Bytes Technology Group PLC, 31 August 2023)
  • "Bytes shares fall 8% as Microsoft changes and sales restructure weigh on profits" (The Times, September 2023)
  • "Bytes Technology Group PLC: Panmure Liberum note" (Panmure Liberum, 31 August 2023)

Read more