Bytes Technology Group

What does the company do?

Bytes Technology Group is a value added reseller (“VAR”) in the UK technology market, selling to both public and private enterprises. It is well diversified, with around 5,000 customers, with the top 10 representing only 8% of gross profit. Bytes focuses predominantly on software which is 92% of revenue, with strong exposures to growth areas such as Cloud, Security and Software Asset Management. Why do we like the investment? Bytes operates in a very fragmented market and, despite having a top 10 position, it only has a 3% market share; we believe this gives the company strong opportunities for growth, and it has outgrown some of its peers. Its exposure to software is higher than other UK VARs, a key differentiator in the market. VARs are a critical part of the technology industry, with leading providers such as Microsoft, Adobe and Oracle relying on them as a route to market. Customers also rely on the expertise, knowledge and advice that companies like Bytes provide, which is critical to many investment decisions companies are making. Technology is an area of constant change and evolution, helping drive structural growth in the industry and the continued need for investment by customers. This is a positive driver for Bytes and its valued market position. Bytes has a strong customer base, where its strong sales and service execution help ensure those customers are loyal. The renewal rate of customers is evidence to this, with 92% of gross profit last year from existing customers. Its business model and exposure to software gives it strong visibility in revenue, despite it not being contracted. Over 60% of its gross profit has been from licenses which are annually or periodically renewable. Bytes is increasingly taking wallet share from its customers, therefore its existing customer base drives strong sales growth outlook. Additionally, Bytes continues to win new customers, and we believe the strength of being a listed business will help its brand recognition. Bytes has a strong culture, with impressive Glassdoor scores and having won awards as a “Best Place to Work”. Its staff tenure, particularly in its sales team, is very strong; only 1 of the top 50 sales people having left and not returned in the last five years. Its strong incentivisation structure on commission has helped retain successful employees, as does a good training and development regime. It has also aligned its Corporate Social Responsibility policy to the UN Sustainable Development Goals, and heavily involved staff in that process. Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.