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What Softcat Holders Got Right

Simply Wall St · 2d ago

If Softcat was on your watchlist rather than in your portfolio, the return may sting. For Softcat shareholders, the return over the past year was 20.2%, including dividends. That outcome invites a harder question. Back on 6 October 2025, when analysts were split between AI driven productivity gains and margin pressure from cloud shifts, what might have helped you judge whether expanding cybersecurity and data centre services could outweigh rising costs and a falling net margin?

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The Two Softcat Stories Investors Had To Weigh

The shares cost £15.7 at the start of the period, and the debate around Softcat turned on whether new service lines and AI tools could do more than offset pressure on margins.

The bullish story pointed to a Fair Value of £17.9. This was the price implied if expansion in cybersecurity and data centre services, plus AI driven productivity, allowed revenue to build while net margin only slipped toward 11.1% by 2028.

The bearish view anchored on a Fair Value of £13.85. This assumed that rising costs, direct vendor competition and cloud shifts kept annual revenue growth nearer 9.8% and crowded gross margin over time.

LSE:SCT 1-Year Stock Price Chart
LSE:SCT 1-Year Stock Price Chart

What The Results Changed For The Softcat Debate

H1 2026 results gave Softcat bulls and bears fresh numbers to chew on. Revenue moved from £545.584m in H1 2025 to £837.544m in H1 2026 and net income also rose, which supported the growth-focused, service expansion story. Net margin slipped from 10.5% to 7.8%, which leaned toward the cautious case. Overall, the evidence cut both ways.

The hinge assumption here was not just whether Softcat could grow, but whether it could grow while keeping margins resilient. When you look at another IT reseller or services group, track revenue, profit and especially net margin together to see whether scale is improving profitability or simply adding volume.

What Softcat's Recent Gain Already Assumes

Softcat now trades at £18.33. The selected Narrative sees Fair Value below that level, reflecting concern that higher revenue ambitions might come with thinner profitability as automation and direct vendor-customer engagement reshape the reseller model.

For today’s price to hold up, you would need to judge that Softcat can keep gross profit and earnings resilient even if industry-wide margin pressure intensifies.

"Increasing automation and direct vendor-customer engagement threaten Softcat's reseller model, compressing margins and diminishing its long-term earnings potential. Rising operational costs and intense competition risk further eroding Softcat's profitability as industry commoditization and regulatory challenges grow."

One Narrative has put a figure on that disagreement. → See the Narrative with its lower Fair Value, assumptions and all

Before The Next Story Makes Headlines

By the time a rally makes headlines, you are reading about returns someone else has already earned. Why not go straight to the source and look for your own contrarian opportunity? These three companies trade below our estimated value.

  • Company 1 - 35% below our estimate - targets energy transition infrastructure funds where current market share remains limited.
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  • Company 3 - 26% below our estimate - adds automated in-house production and distributor partnerships to expand everyday supplement reach.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.