British AI winners, prize draws and perfect pensions: Companies and Markets Show

Investors' Chronicle

This episode explores the shifting landscape of UK finance, focusing on the impact of AI on IT resellers and online marketplaces. It also ex

Key takeaways

• Softcat raised £354 million to fund a $1 billion acquisition of US-based GDT to expand its AI data center exposure.
• Meta's new AI agent, Muse, creates potential disintermediation risks for online marketplaces like Rightmove and Money Group.

Main topics

• AI impact on IT resellers
• Meta's Muse AI agent

Notable quotes

The data center story has clearly been powering this sector.

Conclusion

Investors must balance the high-growth potential of AI-driven sectors

Transcript preview

Speaker 1 (0:08) This week, we're looking at the latest batch of UK AI winners and losers. Up first are the IT resellers who've been reaping the rewards in 2026, the likes of Computer Center and Softcat, the latter of which tapped investors for several hundred million pounds last week to help fund a big US acquisition. On the other side of the ledger, there's been a fresh sell-off in recent days for shares such as Rightmove on the back of the release of Meta's AI agent Muse. But have all of these ups and downs now gone too far? Our tech reporter Arthur Sanz joins us to discuss future prospects for the resellers, for Meta, and for the online marketplaces in just a moment. Then we turn our attention to the burgeoning business of prize draws, be it high profile win your dream home competitions or all manner of niche prizes. Is this the new UK national obsession? Which companies are trying to muscle in on the sector? And what does this all say about our savings habits? Erin Withey is here to explain more. Speaking of savings, we wrap up today's show by marking the publication this week of our SIP special. All you need to know about personal pensions in one helpful online guide and or printed supplement. Helen Coran will tell us when to use a pension versus an ISA and vice versa, as well as outlining some quirks and trends to watch for. We start, though, with AI, as is often the case nowadays. There's a lot of strands here, as I've just detailed, Arthur. But let's begin, first of all, by talking about Softcat and its big equity raise to fund an acquisition. What are the details of that? What is it buying and what's it saying it's going to do? Speaker 2 (1:45) Hi. Yeah. So I did this 354 million pound equity raise to fund a $1 billion acquisition of a US business called GDT. The aim here is to obviously grow in the US because Softcat is a UK focused business. And also it wants to increase the amount of hardware revenue it makes with these. IT resellers, which we'll discuss a couple of them, or three of them on this podcast, they kind of split revenue either between selling software or selling hardware. And they both have different characteristics. Software usually is higher margin and also less cyclical. But at the moment, hardware is the sector that's growing fastest because of all these AI data centers that are being built. And GDT, the company's software app, is just... acquiring is more of a hardware focused business in the US. So theoretically, it should give it more exposure to the AI data center build out. The question though, for investors is whether they're sort of too late into this cycle. So I think the shares are actually down sort of five or 10 % since the acquisition was announced. So I feel like the market is saying that maybe Softcat is making this acquisition too late into this. AI data center boom, and it's not going to catch the full benefits. Speaker 1 (3:16) Yeah, the data center story has clearly been powering this sector, as it has a lot of sectors, for a few months now. The resellers, as the name suggests, they are traditionally intermediaries between the likes of Microsoft and a business wanting computing software, hardware, as you said. They provide some support services as well, that kind of thing on top. The data center story has been an addition to that. There's a question, as you note, for Softcat, which we'll come back to in a minute. But before we do, maybe we should talk about some of the other resellers who also have been doing really well recently for similar reasons. The likes of Computer Center, in particular, has been a bit of a standout this year. Speaker 2 (4:00) Yeah, so Computer Center is the one that gets most of its revenue from hardware and from data centers. It also has the largest U.S. business. So it's most exposed to U.S. companies. building data centers, which for obvious reasons means that it's had a very good year because it's been, it's the intermediary. It will do business for the data center companies and it will do logistics and find all the bits that are needed to build a data center, the servers and infrastructure chips and fans and racks and all that stuff they need. So it's a low margin business and it's been helping all the data center companies find all the components it needs to build out. the AI computing. So Computer Center is earning its revenue in the UK. And its UK business has also been doing extremely well from data center build-outs. I know the focus is on the US, but actually I was kind of surprised to see how much its UK customers have also been investing in AI hardware. So both its UK and US businesses have grown very like 70 or 80 % in the last 12 months. And its shares have more than doubled. in that period. So they've been the most exposed to the AI boom. Whereas Softcat and Bytes are both also doing very well. I think their shares are up sort of 70%. Their growth rate is more, I know, their revenue or gross profit has grown around 20%. Because AI is also good for the software businesses because they all sell cybersecurity services, which obviously there's lots of stories now with these AI threats and cyber threats. A lot of their customers are looking to upgrade their cybersecurity, which is good for IT resellers. And also, because actually early on this year during the SaaSpocalypse, a lot of their shares sold off because they resell the software, the sort of Salesforce and Workday and all these other software as a service products. There was a fear, I think, that maybe AI was going to disintermediate lots of their customers. And actually in May, I tipped. softcat after that sell-off because the sort of simple idea was that if there's going to be two or three times more computing power and there's in general it's probably going to be good for it resellers and whether they're reselling sort of traditional software or ai enhanced software like they're going to need software these ai companies will need a returnless investment and that will mean the it resellers being pressured to sell more of their products so in general it's just been a good environment for lots of these these resellers Speaker 1 (6:36) I'll give some tickers for those listening who want a bit more detail on the company. Softcat, SCT, Computer Center, CCC, and Bytes Technology, BYIT. The question, as you alluded to, though, or as you may have stated explicitly earlier on, is really whether these kind of growth rates can continue and more to the point whether the valuation is now up with events. And we have seen... Some suggestion that that might be the case, haven't we? There's been a downgrade for Computer Centre on the back of its shares, really soaring. Softcat as well, this acquisition. I mean, on one level, there's an interesting story here, kind of separate to all this, about the increased number of UK equity raises we've seen in recent months. I think some of that is reflecting some market reforms that have come through, but that's a story for another day. The other narrative about this acquisition, which has got some people a little concerned, is that Softcat actually has been... an incredibly good organic growth story for a long time, maybe a little bit unheralded in some quarters, but it's really been very strong at growing its existing business regularly, consistently, at a good rate. Clearly, that's accelerated recently. So some concerns about this acquisition are to do with that, really. They are to do with the fact that this is implying that now to grow or keep growing at a... very fast rate or trying to, Softgap needs to buy that growth now. And to some extent, when you consider a company like that, you know, it's had to increase leverage a little bit to do this deal because it's not entirely funded from the equity raise. You lose a bit of that organic growth premium that was perhaps in the shares, in the valuation. You know, if you're a company that can grow without having to make acquisitions, big deal risk. you're going to be valued more highly than companies that need to acquire others to grow. So there are a number of concerns maybe now creeping into the space, given what we've seen over the last few months. Speaker 2 (8:31) Yeah, because they always said that there was all this. They've always been a UK-focused business, but they've always said there's lots more growth to be had in the UK. Loads of businesses still need to migrate to the cloud, and there's lots of sort of digital growth available in the UK to them, and they've always said that. So the fact that they, as you said, have then decided to do this equity raise and they're also using debt, as you said, to do this acquisition, maybe raises some questions about how much they thought they could, or what pace they thought they could continue to grow in the UK market. It's hard though, I don't know, it's hard to look at computer center and see how fast they've been growing in the US and not be tempted by that. And, yeah, I can see why they did it. I can see why having a U.S. market is tempting. And they also often talk about this, what do they call it, like land and expand or strategy of sales, which they're basically trying to sell more services, be it hardware or software, to their existing customers. And, of course, lots of their big customers in the U.K. will probably have operations in the U.S. as well. So there is some... strategic merit to having operations in the US and then being able to sell to them in the US as well as in the UK and do this sort of land and expand sales strategy. So there is lots of good reason for it. I just think the concern is that they're making the acquisition near the top of the cycle. But who knows, maybe the AI build out will continue for a lot longer than... I think it will, and we'll get onto it. But shares in a lot of these semiconductor companies have gone up loads this week off the back of this Meta Muse AI agent announcement because the prices are going up because they think Muse is great and there's going to be loads more demand for data centers in the future if everyone's using these amazing AI agents that Meta's building. So then if that's the case, then... Computer center is going to have more business and Softcat's acquisition in the US is probably going to be a good deal because they'll be doing procurement for lots of these