Bytes Technology Group, a UK-listed specialist in software, security, cloud and AI services, reported gross invoiced income of £2.34bn for the year to February 2026, up 11.5%. That headline figure sounds muscular, but it is not the same as revenue or profit. For a reseller, much of what is billed to customers is passed on to software vendors: gross profit is the cleaner measure of what the company keeps.
On that basis, the year was more pedestrian. Gross profit rose only 2.5% to £167.3m, while operating profit fell 5.6% to £62.7m. Earnings per share slipped 6.1% to 21.4p. Cash remained a strength: Bytes ended the year with £98.6m, generated free cash flow of £65.9m and achieved cash conversion of 105.1%, even after returning £74m to shareholders through dividends and buybacks.
The main culprit was not a collapse in demand. Software gross invoiced income rose 11.4%, services grew even faster, and the public sector was solid. Instead, margins were pinched by changes in Microsoft's partner incentives and by a reorganisation of Bytes's private-sector sales team. Microsoft matters greatly: the company says it accounts for about half of gross profit and around 68% of gross invoiced income. That concentration is both a blessing and a risk.
The Microsoft effect
Bytes has lived with Microsoft for four decades. Resellers such as Bytes do not merely sell licences: they interpret a confusing technology market for customers, manage renewals and increasingly help with cloud, cybersecurity and AI projects. This is why Microsoft's shift away from some transactional enterprise-agreement incentives towards consumption-based cloud and service-led funding was disruptive but not necessarily fatal.
Microsoft software gross profit fell in the first half, then returned to double-digit growth in the second half. Services gross profit rose 38.4% to £17.4m, helped by vendor funding and customer demand for implementation, support and managed services. That is encouraging, because services should make Bytes less dependent on simple licence resale. But it is also a reminder that the old model - renewals, rebates and operating leverage - may no longer do all the work.
There was a second self-inflicted wobble. Bytes moved its private-sector sales force from a generalist model to one segmented by customer size. Such reorganisations often promise "customer centricity". In plain English, Bytes wants large, medium and smaller customers to be served by teams that better understand their needs. The change hurt momentum in the first half, though management says pipelines normalised later in the year.
A valuation no longer priced for perfection
The market seems to have noticed the slower beat. MarketScreener data shows Bytes has a market value of about £751m and an enterprise value of about £649m. It put the price/earnings ratio at 14.8 times, and EV/EBITDA at 9.78 times.
These are not distressed multiples, but nor are they the lofty ratings often granted to rapidly growing software businesses. They look more like the price of a cash-generative distributor whose growth story needs repair. Bytes may benefit as customers buy Copilot, security tools and cloud services, but it remains a reseller and services partner, not an owner of proprietary AI platforms. Its economics depend on vendor terms, customer budgets and its ability to attach higher-margin advice and support to the software it sells.
For FY27, management expects high-single-digit to low-double-digit gross-profit growth, but operating profit to be broadly flat as costs normalise.
