The UK software and IT services sector has recovered its year-to-date losses, but H2 delivery capabilities, the degree of AI benefits, and valuations are driving stock-level divergence

Overview

The report assesses H2 risks for the UK software and IT services sector following a strong rebound, focusing on the revenue, order, cost, and margin paths required for each company to meet FY26/FY27 expectations. Deutsche Bank believes overall sector sentiment has improved, but opportunities are uneven: Softcat and Kainos may still see forecast upgrades, expectations for Bytes and Boku are relatively conservative, Cerillion's H2 risk is largely priced in, while recoveries at some companies still depend on specific delivery milestones.

Core views

The UK software and IT services sector experienced significant volatility in 2026, broadly tracking US software stocks, with the key variable being investors' assessment of whether AI will weaken traditional business models or generate incremental technology spending. The sector has performed strongly over the past three months, is now slightly above its level at the beginning of the year, and is approximately 42% above its late-March low. Computacenter and Softcat accounted for a large share of the rebound: the report states that they are up approximately 70% and 50% year to date, respectively, and approximately 80%-90% above their intra-year lows; Sage is up approximately 5% year to date and approximately 40% above its intra-year low. Another summary in the report describes Softcat's year-to-date gain as approximately 80%, but the detailed sector and rating sections both use approximately 50%. Among the 13 companies covered in this report, six—Softcat, Molten Ventures, Kainos, Bytes, Sage, and NCC—are up year to date, with most gains concentrated in the past three months. Kainos and Softcat benefited from earnings upgrades, while other companies also benefited from the market's reassessment of AI winners and losers and relative valuations; Boku, GB Group, and Cerillion were the weakest performers, affected respectively by profit warnings or high H2 delivery concentration. The report does not adjust overall earnings forecasts, but instead examines company by company whether existing forecasts are achievable and whether the growth trajectory entering the next fiscal year is credible. Deutsche Bank believes Softcat and Kainos currently have strong trading momentum and that forecasts for fiscal years ending the following March still carry upside risk; Bytes' recent data have improved markedly, while the low end of Boku's post-profit-warning guidance appears conservative; Molten Ventures still has potential for further fair-value upgrades. Meanwhile, FY27 growth rates generally imply an improving environment or better execution, and the report specifically calls for examining whether the expected growth acceleration at Boku, FDM, Ocado, and Bytes is adequately supported. Slower forward growth at Softcat and Kainos is more attributable to a strong FY26 base, while GB Group's FY27 growth is expected to be lower than FY26 due to recent setbacks in its US identity business. The distribution of revenue and profit between H1 and H2 is central to the report's assessment of delivery risk. Among companies with fiscal year-ends from September to December, Cerillion has the highest H2 revenue weighting because license fees from the record Omantel contract are expected to be recognized in H2. At the profit level, Accesso due to seasonality, Cerillion due to license-fee recognition, FDM due to the report's cautious assumption of an H2 improvement, and Ocado because its April cost reductions will have a greater H2 impact all have high H2 weightings. The margin analysis further shows that the report expects nine of the 13 companies to have higher FY27 margins than in FY26, with Ocado and NCC posting the largest improvements, mainly dependent on significant cost reductions. The report states that four companies will see margin declines, but the body text explicitly names only Bytes, GB Group, and Softcat: the first two have flagged higher costs, while Softcat faces a high base created by strong FY26 performance. The report emphasizes that these companies have operating leverage, meaning revenue growth usually has a significant impact on margins, although management can also protect profits through cost controls. M&A provides another source of sector support. Over approximately the past 18 months, Alphawave, FD Technologies, Pinewood Technologies, Idox, NCC Group's Escode division, 1Spatial, Trakm8, and essensys have been involved in formal offer processes; Gamma Communications, Auction Technology, Craneware, GlobalData, and Aptitude Software have also been subject to takeover approaches, strategic reviews, or formal sale processes. Deutsche Bank therefore believes the valuations of UK technology assets remain attractive to strategic and financial buyers, that high-quality software and data assets remain appealing despite AI concerns, and that this trend will continue for the foreseeable future. For Cerillion, the report upgrades the rating from Hold to Buy but cuts the target price from 1575p to 1400p. The shares have fallen 27% over the past three months, and the report believes this decline exceeds what would reasonably reflect the high concentration of revenue in H2 of the current fiscal year. Its core assumption is that license fees from the record Omantel contract will be recognized in H2, while the company also needs to sell some extensions or additional licenses to existing customers to meet full-year expectations. Deutsche Bank believes these requirements are achievable and that the issue is more a loss in time value caused by delayed revenue recognition than a structural deterioration in fundamentals; given the strength of its products, the company should still be able to win large contracts in the future. The new target price applies 15 times EV/EBIT for the fiscal year ending September 2027. For Bytes, the rating is upgraded from Hold to Buy and the target price is raised from 410p to 500p. The company's July AGM update showed that gross invoiced income and gross profit in both the public and private sectors achieved double-digit year-on-year growth during the first four months of FY27, while operating profit was broadly flat year on year. Compared with FY26, public-sector gross profit growth improved from 1.6% in H1 to approximately 13% in H2, while the private sector improved from -0.6% in H1 to slightly above flat in H2; both customer groups are now simultaneously achieving double-digit growth, indicating that the organization is stabilizing following changes in the prior year. FY27 guidance calls for gross profit growth to accelerate further to the high-single-digit to low-double-digit range, but operating profit to remain broadly flat, mainly due to approximately £4.5 million of cost normalization, including technology costs following the completion of strategic projects, the reclassification to the income statement of some developer compensation that was previously capitalized, and the normalization of bonuses. Deutsche Bank believes AI-driven technology spending provides a structural tailwind for resellers; although Bytes has little hardware exposure, the recovery in gross profit should ultimately translate into operating profit growth. The 500p target price is based on approximately 15 times calendar-year 2027 EV/EBIT, corresponding, on the report's basis, to slightly below 16 times reported EBIT or slightly below 15 times adjusted EBIT. For Softcat, the report recognizes that the company has one of the best execution track records in the market, with key metrics continuing to deliver strong double-digit growth. Some of the growth comes from large solutions projects, but its customer relationships and consulting capabilities should allow it to continue gaining share as AI makes the technology environment more complex; the report also believes current forecasts are conservative and could still be upgraded. However, the shares are already up approximately 50% year to date and trade at approximately 24 times calendar-year 2027 earnings, meaning much of the good news is already priced in, so the rating is downgraded from Buy to Hold. The target price is raised from 1800p to 2140p, corresponding to 18 times calendar-year 2027 EV/EBIT, and the report considers the premium to the industry justified. Accesso's FY26 guidance remains revenue of $146 million and cash EBITDA of approximately $20 million, broadly consistent with Deutsche Bank's forecasts of $146 million and $20.3 million, respectively. The full year is weighted toward H2 because of the peak summer and Halloween seasons; guidance also includes approximately $1.9 million of milestone revenue from the Middle East, mainly Saudi Arabia, which has a very high margin and is primarily license-related, but still depends on H2 delivery. The report states that the milestones are distributed broadly evenly across the remainder of the year, so delays do not represent an all-or-nothing risk. The existing arrangement for the Merlin ticketing contract runs through August 2026, and Merlin has the option to extend it by two years; the report expects the contract to enter the two-year extension period on the same terms unless a new announcement is made. Longer-term growth opportunities include integrating ticketing, food and beverage retail, guest experience, virtual queuing, and accessoPay into a single ecosystem to increase cross-selling and customer stickiness; beginning in FY27, embedded payments can generate revenue through a share of transaction volumes; following the acquisition of Dexibit, the company can also consolidate multiple types of operating data into a single intelligence layer, providing customers with AI-driven actionable insights. Accesso is valued at 6.9 times calendar-year 2026 EV/cash EBITDA, declining to 5.8 times in 2027; the report forecasts an FY27 cash EBITDA margin of approximately 14% and believes profitability still has room to improve once revenue momentum strengthens, given its approximately 80% gross margin. Boku's short-term H1 setback presents a recovery opportunity, but it must be validated by actual delivery. In early July, the company indicated H1 revenue of approximately $66.5 million, up 5% year on year; excluding the effect of one-off launch pricing in the comparison period, growth was approximately 11%, while adjusted EBITDA was approximately $19.3 million, below analysts' previous assumption of approximately 20% revenue growth. The shortfall resulted from a customer adopting a dual-supplier model in one region, delays in launching several new markets, the suspension of two direct carrier billing connections in a single market, and slower-than-expected activation of new connections and customer onboarding. FY26 guidance was cut to revenue of $135 million to $142 million and adjusted EBITDA of $38 million to $42 million; management said the low end assumes limited H2 progress, with cost-efficiency measures offsetting part of the revenue shortfall. The report believes the $135 million low end includes almost no H2 contribution from a major customer's delayed projects and is therefore relatively de-risked, but those projects must launch and ramp up in H2 to support FY27. Boku's recent growth is concentrated in a small number of customer launches, making customer concentration an explicit risk. The report believes the recent dual-sourcing incident was specific to a particular customer, market, and one-off payment method; most of the business uses tokenized payments, and switching processors can cause renewal failures, subscription churn, and the need for users to re-enter their information, making these relationships stickier, but investors will still examine whether similar situations are spreading across the network. Positive developments include establishing its first partnership with a global payment service provider through Stripe, launching PIX transactions in Brazil and UPI transactions in India, and beginning engagement with its first direct-sales customers; Stripe already has two merchants live. Boku currently trades at approximately 9.6 times 2026 EV/EBITDA, falling to 7.7 times in 2027. The report forecasts FY26 revenue growth of approximately 5% and a 7% decline in adjusted EBITDA; these forecasts may prove conservative if delayed projects launch successfully and generate transaction volumes. Double-digit growth is expected to resume in FY27, but the magnitude will depend on the exit growth rate at the end of FY26. The target price is based on approximately 10 times calendar-year 2027 EV/EBITDA, roughly equivalent to 1 times the expected three-year EBITDA CAGR from FY25 to FY28.

Analysis framework

The report first compares the year-to-date and past-three-month performance of UK software and IT services stocks, identifying the effects of earnings upgrades, AI sentiment, and relative valuations on share prices. It then breaks down each company's H1/H2 revenue and profit weighting and compares growth rates for H1’26, H2’26, FY27, and, for some companies, FY28 to test assumptions of acceleration or deceleration in the next fiscal year. The report then compares FY26 and FY27 margins, combining revenue growth, operating leverage, and cost actions to assess the likelihood of earnings delivery. Finally, it checks company-specific milestones such as contract recognition, customer launches, and cost normalization, and uses EV/EBIT, EV/EBITDA, and P/E multiples to determine ratings and target prices.

Methodology notes

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Linkage between revenue growth, cost control, and margins

  The report believes these companies' margins are significantly affected by revenue growth and operating leverage, while management can protect profits through cost reductions. It therefore assesses the FY26-to-FY27 revenue path, cost actions, and margin changes together.

• Valuation MethodEV/EBITDA valuation

  EV/EBITDA multiple valuation

  The report values Accesso and Boku using enterprise value relative to EBITDA or cash EBITDA and compares their 2026 and 2027 multiples and growth prospects.

• Valuation Method

  EV/EBIT multiple valuation

  The target prices for Cerillion, Bytes, and Softcat are primarily based on 2027 EV/EBIT multiples, reflecting profitability, execution quality, and premiums relative to the industry.

• Valuation MethodPE/PEG valuation

  P/E and growth valuation constraints

  The report uses Softcat's approximately 24 times 2027 P/E to conclude that strong growth and potential upgrades are already substantially priced into the shares and therefore downgrades the rating to Hold.

• Event Strategies and Behavioral FinanceEvent-driven analysis

  Key earnings dates and delivery milestones

  The report lists interim results, trading updates, full-year results, and contract or customer-launch milestones to determine which events could drive earnings above or below expectations or trigger valuation rerating.

• (Out-of-Vocabulary Method)

  H1/H2 weighting and forecast-delivery analysis

  The report splits full-year revenue and adjusted EBIT, EBITDA, or pre-tax profit between H1 and H2, identifies companies whose forecasts are concentrated in the second half, and reviews the license recognition, orders, customer launches, and cost savings required to meet full-year targets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Accesso

  H2 seasonality, Saudi milestone revenue, and the Merlin renewal will determine near-term delivery, while embedded payments and data intelligence support growth beyond FY27.

  Strengths

  An integrated multi-product ecosystem, customer stickiness, an approximately 80% gross margin, and the ability to use operating data for AI.

  Weaknesses

  FY26 profit and revenue are weighted toward H2, while the forecast FY27 cash EBITDA margin is only approximately 14%.

  Comparison

  6.9 times 2026 and 5.8 times 2027 EV/cash EBITDA, which the report considers attractive.

  Risks

  Uncertainty over renewal of the Merlin contract and H2 delivery risk for approximately $1.9 million of Middle East milestone revenue.

• Boku

  The report views the H1 warning as a potentially temporary setback, but the FY27 recovery depends on delayed customer launches and transaction-volume ramp-up.

  Strengths

  Tokenized payments offer relatively strong stickiness, and the company has expanded through Stripe, Brazil's PIX, and India's UPI.

  Weaknesses

  H1 growth was below expectations, and recent growth is concentrated in a small number of customers.

  Comparison

  The valuation declines from approximately 9.6 times 2026 EV/EBITDA to 7.7 times in 2027.

  Risks

  Further launch delays, customer concentration, the spread of dual-supplier models, and slower-than-expected merchant onboarding.

• Bytes

  A synchronized recovery in public- and private-sector gross profit and AI-driven technology spending support the rating upgrade from Hold to Buy.

  Strengths

  During the first four months of FY27, gross invoiced income and gross profit achieved double-digit year-on-year growth in both the public and private sectors.

  Weaknesses

  Approximately £4.5 million of cost normalization results in broadly flat FY27 operating profit guidance.

  Comparison

  The 500p target price is based on approximately 15 times calendar-year 2027 EV/EBIT.

  Risks

  If gross profit growth is not sustained, the operating profit recovery may be delayed.

• Cerillion

  The share-price decline has largely priced in H2 delivery risk, prompting an upgrade from Hold to Buy.

  Strengths

  Strong products and the prospect of continuing to win large contracts.

  Weaknesses

  Full-year revenue is highly dependent on H2 license-fee recognition and additional sales to existing customers.

  Comparison

  The 1400p target price is based on 15 times EV/EBIT for the fiscal year ending September 2027.

  Risks

  Failure to recognize the Omantel license fees or additional licenses on schedule.

• FDM

  The report cautiously assumes an H2 improvement and identifies FDM as a company requiring validation of the basis for an FY27 growth recovery.

  Strengths

  The report title describes it as a recovery Buy and notes initial signs of improvement.

  Weaknesses

  Profit delivery is weighted toward H2.

  Risks

  If the H2 improvement does not materialize, the assumption of accelerating FY27 growth may come under pressure.

• GB Group

  Setbacks in the US identity business mean FY27 growth is expected to be lower than FY26, and investor confidence needs to be rebuilt.

  Weaknesses

  It recently issued a profit warning and explicitly flagged higher costs.

  Comparison

  It is among the companies identified in the report as having the weakest year-to-date and past-three-month performance.

  Risks

  Continued weakness in the US identity business, rising costs, and declining margins.

• Kainos

  Strong momentum creates upside risk to earnings forecasts but also establishes a high base for future periods.

  Strengths

  Strong Digital Services momentum and clear recent earnings-upgrade momentum.

  Weaknesses

  Forward growth forecasts moderate due to strong current momentum.

  Comparison

  One of the six companies up year to date.

  Risks

  A strong base may cause growth to slow in outer years.

• Molten Ventures

  The report believes its portfolio still offers opportunities for further fair-value upgrades.

  Strengths

  Potential fair-value appreciation.

  Comparison

  One of the six companies up year to date.

• NCC Group

  Significant cost reductions are expected to improve FY27 margins, but the next phase requires consistently stable execution.

  Strengths

  The report expects its FY27 margin improvement to be among the strongest in the sector.

  Weaknesses

  The earnings recovery depends on cost actions and consistent execution.

  Comparison

  Alongside Ocado, it is expected by the report to deliver the largest FY27 margin improvement.

  Risks

  Cost reductions or execution may fall short of expectations.

• Ocado

  Cost actions taken in April will have a greater impact in H2 and support FY27 margin improvement.

  Strengths

  Significant cost reductions provide potential for margin recovery.

  Weaknesses

  Profit delivery is weighted toward H2, and the scope for technology monetization still needs to be validated.

  Comparison

  Alongside NCC, it is expected by the report to deliver the largest FY27 margin improvement.

  Risks

  Cost actions or the pace of technology commercialization may fall short of expectations.

• Sage

  As the sector's largest constituent, its performance reflects the recovery in sector sentiment from intra-year lows.

  Strengths

  The report title states that it is firmly established in the double-digit growth range.

  Comparison

  Up approximately 5% year to date and approximately 40% from its intra-year low.

• Softcat

  Execution and growth remain strong, but the high valuation has prompted a downgrade from Buy to Hold.

  Strengths

  Strong customer relationships, an excellent execution track record, and the potential to continue gaining share in a complex AI technology environment.

  Weaknesses

  A high FY26 base may reduce forward growth, while the current valuation already reflects much of the good news.

  Comparison

  Approximately 24 times 2027 P/E; the 2140p target price corresponds to 18 times 2027 EV/EBIT and an industry premium.

  Risks

  The fading contribution from large projects, a strong comparison base, and valuation-compression risk.

Key data

• Sector gain from late-March lowApproximately 42%As of the report date, the sector was slightly above its level at the beginning of the year
• Number of companies up year to date6 companies/13 companiesSoftcat, Molten Ventures, Kainos, Bytes, Sage, and NCC
• Number of companies expected to improve FY27 margins9 companies/13 companiesOcado and NCC are expected to improve the most, mainly driven by cost reductions
• Cerillion share-price performance over the past three months-27%The report believes this has over-discounted the risk of H2 revenue concentration
• Cerillion rating and target priceBuy; 1400pRating upgraded from Hold and target price cut from 1575p; based on 15 times EV/EBIT for the fiscal year ending September 2027
• Bytes rating and target priceBuy; 500pRating upgraded from Hold and target price raised from 410p; based on approximately 15 times calendar-year 2027 EV/EBIT
• Bytes FY27 operating guidanceHigh-single-digit to low-double-digit gross profit growth; operating profit broadly flatApproximately £4.5 million of cost normalization weighs on operating profit
• Softcat rating and target priceHold; 2140pRating downgraded from Buy and target price raised from 1800p
• Softcat valuationApproximately 24 times calendar-year 2027 P/E; target price corresponds to 18 times calendar-year 2027 EV/EBITThe report believes it should trade at an industry premium, but the current valuation limits the rating
• Accesso FY26 guidanceRevenue of $146 million; cash EBITDA of approximately $20 millionDeutsche Bank forecasts $146 million and $20.3 million, respectively
• Accesso Middle East milestone revenueApproximately $1.9 millionPrimarily from Saudi Arabia, dependent on H2 delivery, and expected to carry a very high margin
• Accesso valuation6.9 times 2026 and 5.8 times 2027 EV/cash EBITDAThe report forecasts an FY27 cash EBITDA margin of approximately 14%, while the company's gross margin is approximately 80%
• Boku H1’26 preliminary resultsRevenue of approximately $66.5 million; adjusted EBITDA of approximately $19.3 millionRevenue grew 5% year on year, or approximately 11% excluding a one-off comparison factor
• Boku FY26 guidanceRevenue of $135 million to $142 million; adjusted EBITDA of $38 million to $42 millionThe low end of guidance assumes limited H2 progress
• Boku valuationApproximately 9.6 times 2026 and 7.7 times 2027 EV/EBITDAThe target price is based on approximately 10 times calendar-year 2027 EV/EBITDA

Impact & implications

The report believes the sector's rebound does not mean risks have disappeared; rather, the market is beginning to differentiate between AI-related pressure on business models and opportunities from technology spending. Near-term rerating will depend on whether H2 license fees, customer launches, cost savings, and trading updates are delivered; over the medium term, it will depend on whether these companies can convert current orders, payment networks, customer relationships, and data capabilities into sustained growth. The risk-reward profiles of Bytes and Cerillion have become more attractive due to improved expectations or share-price declines. Although Softcat may still see earnings upgrades, its valuation has led the report to move to Hold; continued M&A activity involving UK technology assets provides another layer of valuation support for high-quality software and data companies.

Risks

• Investors' assessment of whether AI threatens traditional software business models or drives technology spending may continue to fluctuate, causing further sector volatility.
• Cerillion's full-year revenue is highly dependent on recognizing Omantel license fees in H2 and completing additional license sales to existing customers.
• Accesso's approximately $1.9 million of Middle East milestone revenue still depends on H2 delivery, while renewal of the Merlin ticketing contract also requires further confirmation.
• Boku faces risks from continued customer-launch delays, merchant concentration, insufficient onboarding speed, and the spread of dual-supplier arrangements.
• Approximately £4.5 million of cost normalization weighs on Bytes' FY27 operating profit, while GB Group has also explicitly flagged rising costs.
• Margin improvements at Ocado and NCC primarily depend on substantial cost reductions, and insufficient execution would weaken the earnings recovery.
• Softcat currently trades at approximately 24 times 2027 P/E, with strong growth and potential forecast upgrades already substantially reflected in its valuation.

What to watch

• Monitor recognition of Cerillion's Omantel license fees and additional licenses, H2 launches and transaction-volume ramp-up for Boku's delayed customers, and Accesso's Merlin renewal and Middle East milestone delivery.
• Assess whether the FY27 growth recoveries at Boku, FDM, Ocado, and Bytes have clear drivers, while monitoring the effects of strong comparison bases at Softcat and Kainos and GB Group's US identity business on growth.
• Monitor whether cost reductions at Ocado and NCC deliver the expected FY27 margin improvements, as well as the actual impact of incremental costs at Bytes and GB Group on margins.
• Key update dates include Accesso's interim results on September 15, Boku's interim results on September 23, Bytes' H1 trading update in mid-September, Eurowag's interim results on September 9, and late-October updates from Cerillion, GB Group, Molten Ventures, and NCC Group.
• Later dates also include Kainos' interim results on November 9, FDM's trading update in mid-November, Sage's full-year results on November 19, Softcat's preliminary results in late October, and Ocado's full-year results on February 25, 2027.