Sales and profit grew, dividend increased... but gross margin compression (Microsoft incentive changes) explains the weak share price reaction.

Key Metrics (1H FY26 vs 1H FY25)

• Gross Sales: $1.54bn (+9%)
• Revenue: $423m (+8%)
• Gross Profit: $144m (+0.3%) → essentially flat
• NPAT: $23.2m (+3.7%)
• EPS: 14.95c (+3.6%)
• Interim Dividend: 13.5c (+3%)
• Margin on Gross Sales: 9.3% (down from 10.2%)
• Net Debt: Nil (cash $125m)

What Drove the Result?

Software Solutions

• Gross sales +9%
• Gross profit -4.6%
• Margin 3.5% (down from 4.0%)
• Impact from Microsoft incentive program changes (as expected by management)

Infrastructure Solutions

• Gross sales +18%
• Management profit +105%
• Driven by Windows 11 refresh, AI-enabled devices, data centre demand

Services

• Managed Services & Consulting improving
• Project Services & recruitment softer

Management Framing

• Result “in line with expectations”
• Microsoft impact concentrated in 1H
• Expect Software GP to rebound in 2H
• Full-year Software GP expected to be consistent with FY25
• Earnings typically 2H weighted (May–June peak)

My Thesis Check

The core story (device refresh → AI/cloud/security → managed services annuity) is intact.

But:

• Profit growth came from cost discipline + Infrastructure leverage.
• Gross profit quality weakened.
• Microsoft concentration risk has now moved from theoretical to observable.

What I’m Watching (Next 6 Months)

1. Does Software GP actually rebound in 2H?
2. Does total margin recover back toward ~10%?
3. Does recurring mix move meaningfully above ~70%?

If yes → thesis intact.

If no → premium valuation (27–30x PE) becomes harder to justify.