MIDAS SHARE TIPS: Bytes Technology is ready to rebound after a tough year

This spring Microsoft will turn 50. From humble beginnings in Albuquerque, New Mexico, it has become one of the largest companies in the world, credited with transforming the computing industry and, with it, our daily lives.

Microsoft technology first went on sale over here in the 1980s and, in 1982, Bytes Computer Supplies opened in Surrey, specialising in floppy disks and other accoutrements from the American group.

Today, Bytes Technology, as it is now known, is a £1.1 billion company with about 1,200 employees and 6,000 customers.

It floated on the Stock Exchange in December 2020, a fortnight before Britain’s first Covid Christmas. Shares were priced at £2.70, market response was enthusiastic and, by January 2024, they were trading at more than £6.50. The past year has been less fruitful, and today shares are just £4.65. At this level they are undervalued and should rebound through 2025 and beyond.

Back in the 1980s, Bytes’ range was small. Early tech geeks used Microsoft to write simple documents and create spreadsheets on their computers, and Bytes sold the kit that made it possible.

Since then the computer world has changed beyond recognition, with Microsoft alone offering hundreds of services, from Outlook and Teams to design ware, cloud storage and, lately, Copilot, an artificial intelligence tool.

Individuals can buy many of these products directly, but businesses tend to go through agents, known as resellers, who offer lower prices, advice and support when things go awry.

Bytes is the number one Microsoft reseller in the UK, with customers ranging from the police, fire service and local authorities to Harvey Nichols, Trainline and Findus food group. 

Customers tend to employ between 500 and 2,500 staff – large enough to need plenty of IT but not so large that they can sort everything out themselves. That is where Bytes comes into its own.

Technology has become a vital tool for private businesses and the public sector alike, but services have become so complex that even IT teams need experts to help them work out what to buy, when to buy and how to use what they have bought.

Bytes staff are highly trained, often starting there as graduates and spending years with the firm.

To an outsider, conversations between these salespeople and their customers can sound like PhD interactions – or gobbledegook. To those in the know, such in-depth negotiations are an essential part of business success.

Bytes chief executive Sam Mudd prides herself on offering top-level service to new and existing customers and, although Microsoft is a major partner, she works with a range of suppliers, covering almost every technology need, including cyber security.

A long-time staffer, Mudd took the helm last spring after former chief executive Neil Murphy resigned, having bought shares in Bytes without telling the board.

Investors took fright, Bytes stock plummeted and, although Murphy was later cleared, the shares have remained depressed.

Mudd is undeterred, having spent recent months drawing up a growth plan designed to drive sales and profits over the next five years.

Potential is clear. Despite its number one position, Bytes has just a 4 per cent share of the market so there should be plenty of opportunities to expand.

Despite wobbles on Wall Street, demand for software is rising too, with with forecasters suggesting annual growth of about 10 per cent.

Brokers expect Bytes profits to increase 19 per cent to £73 million in the year ending February 28, climbing to £87 million by 2027.

The group has a history of paying ordinary and special dividends too, forking out 8.7p in ordinaries and 8.7p in a one-off special last year, and expected to deliver 19.6p for 2025, rising to 21.5p next year.

Midas verdict: Recent results from Microsoft and other tech titans may have disappointed investors, but the days when we managed perfectly well without IT are long gone. 

Bytes helps companies, charities and the public sector to navigate the digital minefield. 

With a strong track record and a reputation for delivering on its promises, the company should prove resilient, even in today’s uncertain times. 

That makes the shares a buy, at £4.65.

Traded on: Main market Ticker: BYIT Contact: bytesplc.com