On Wednesday, Berenberg initiated coverage on Bytes Technology Group PLC (LON:BYIT:LN) stock with a Buy rating and a price target of GBP6.40. The firm highlighted Bytes Technology Group (JO:BYIJ)'s position as a high-quality Value-Added Reseller (VAR), distinct in its focus on software, partnership with Microsoft (NASDAQ:MSFT), and engagement with the public sector.
Bytes Technology has demonstrated a strong operational performance, showing a compound annual growth rate (CAGR) of 22% in gross profit from fiscal year 2018 to 2024. The company's operating profit to gross profit conversion, return on capital, and cash conversion metrics are considered to be best-in-class within the industry.
Despite the negative impact of the former CEO's trading misconduct on the company's reputation, Berenberg believes the core attributes of Bytes Technology remain intact. The analyst pointed out that Bytes' stock has declined by 16% year to date, which presents it as a more attractive investment compared to its peer Softcat (LON:SCTS), whose shares have increased by 14% year to date and are trading at 29 times enterprise value to free cash flow (EV/FCF).
The firm's initiation of the Buy rating is supported by the view that Bytes Technology's shares, trading at 20 times EV/FCF, offer better value for similar expected growth rates. The price target set at 640 pence represents an approximate 24% upside from the current levels.
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