J.P. Morgan Initiates Coverage on Bytes Technology Group and Bechtle, Flagging Limited AI Upside

On Monday, J.P. Morgan began research coverage of Bytes Technology Group and Bechtle, assigning an Underweight rating to Bytes and a Neutral rating to Bechtle. The bank highlighted Bytes’s minimal involvement in AI infrastructure and risks related to vendor incentives, while noting Bechtle’s cyclical sensitivity and an earnings outlook that already incorporates a recovery.

J.P. Morgan reaffirmed Computacenter as its top pick among European value-added resellers, pointing to Computacenter’s exposure to hyperscale capital spending.

For Bytes, the bank set a December 2027 price target of 375 pence, which implies a roughly 10% decline from current trading levels.

J.P. Morgan noted that Bytes’s hardware segment contributes less than 10% of gross profit, compared with its peers, and flagged that recent modifications to Microsoft’s incentive programs could pose risks to consensus forecasts.

The revised Microsoft incentives encourage channel partners to focus on adding net new seats and boosting usage among existing seats rather than on renewals, a shift that J.P. Morgan believes could limit Bytes’s gross profit expansion in the near term.

J.P. Morgan projects that Bytes’s gross profit and operating profit will come in about 2% below market consensus for fiscal years 2027 through 2029.

In fiscal 2026, hardware represented around 3% of Bytes’s gross invoiced income and gross profit, whereas Microsoft contributed approximately 50% of the group’s gross profit.

Bytes’s operating profit margin, measured as operating profit over gross profit, declined to 37.5% in fiscal 2026 from 40.7% in fiscal 2025, a decrease of roughly 320 basis points.

Leadership turnover has marked Bytes, including the resignation of CEO Neil Murphy in February 2024 after it came to light that he had made unauthorized share transactions from 2021 to 2023. On the news, the company’s stock dropped about 20% in a single day.

Sam Mudd became permanent CEO in May 2024. Chairman Patrick De Smedt is expected to relinquish his post by September 30, 2026, with Gavin Rochussen already appointed as chair-designate. Chief Financial Officer Andrew Holden will assume the chief operating officer position once a successor is named.

Turning to Bechtle, J.P. Morgan established a December 2027 price target of €38, indicating only modest upside, and indicated that it does not anticipate a significant raise in financial targets at the company’s Capital Markets Day scheduled for September.

Bechtle generates nearly half of its business volume from small and medium-sized enterprises, which are generally less inclined to spend on AI-focused infrastructure, while large enterprises account for only about 10% of volumes, according to J.P. Morgan.

For fiscal 2026, J.P. Morgan expects Bechtle’s pretax profit to rise roughly 9% year over year, which falls within management’s guidance of 5% to 10% growth. The bank also sees Bechtle’s profit estimates for fiscal 2027 and 2028 as broadly aligned with consensus.

Bechtle’s year-to-date stock performance is down 17%, lagging its peers such as Computacenter, which has climbed 82%; Softcat, up 43%; and Bytes, which has gained 16%.

At roughly 18 times forward earnings, Bechtle’s valuation sits approximately one standard deviation below its 10-year average of 22 times.