I wouldn’t be surprised if this sort of volatility stuck around. For all the excitement that Elon Musk’s business inspires, one can’t ignore the fact that it also fails to deliver the very thing most investors tend to cherish the most: profit.

I prefer to back companies with proven track records on this front.

Fortunately, one doesn’t need to look all that hard to find some in the UK market.

Less hype, better results

An example is FTSE 100 member Computacenter (LSE: CCC).

Back in May, the technology services provider announced that higher corporate spending on IT, particularly in North America, had led to strong performance in the first quarter of 2026. This was followed on 9 July by a statement that first-half adjusted pre-tax profit would be about double that of the £81.5m achieved over the same six months in 2025.

In addition, the company now expects its full-year profit to come in comfortably ahead of market expectations.

Such talk was always likely to go down well with the market. However, Computacenter’s value has been motoring upwards for a while, no doubt helped by its involvement in the AI boom. Anyone investing one year ago would have doubled their money, in addition to receiving dividends.

If the firm somehow manages to eclipse its own projections in 2026, there could be even more gains ahead.

Already priced in?

Of course, there’s always a chance that earnings suffer an unexpected blow and/or investor expectations overtake reality. Supply chains could get interrupted or its market could become even more competitive.

All this needs to be kept in mind given Computacenter’s valuation. The forecast price-to-earnings (P/E) ratio now stands at 22. That’s not excessive but it does suggest that the price is fairly up-to-date with events. It could also mean that the £4.7bn cap could suffer more than most in the event of a sudden downturn in the general market. Such are the risks that come with owning growth stocks.

Even in the absence of a crash or correction, operating margins are extremely low. Put another way, a slight rise in costs can have a meaningful impact on performance. If this were to persist, one suspects the share price will suffer.

Will I ever buy SpaceX shares?

Despite these concerns, I’m far more interested in Computacenter than SpaceX as a potential investment.

It’s not that I can’t find anything of value in the latter. Its satellite division, Starlink, is certainly proving its salt.

Even so, the absurd valuation being slapped on the company as a whole, supported by speculative claims about commercial asteroid mining and space tourism, leads me to think there are better opportunities elsewhere.

I grudgingly accept that I will inevitably own a slice of the company as and when the index funds that I hold are required to buy in.

But buy the shares directly? I’d rather keep my feet on the ground.

Should you invest £5,000 in Computacenter Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Computacenter Plc made the list?

Paul Summers has no position in any of the shares mentioned.

The post Buy the dip on SpaceX shares? I’m considering this FTSE 100 growth stock instead! appeared first on The Twelfth Magpie.

The group’s long record of profit growth and cash generation has gone largely unnoticed by the wider market. And with the shares still trading at a clear discount to peers, this promotion could finally bring the re-rating the business has long earned.

So, where ‘should’ the shares be trading?

How big is the price-to-valuation gap?

In stock investing, price and value serve very different functions. Price represents the current market consensus, but value reflects the underlying business performance and future cash flows.

Recognising the gap between the two is essential for long‑term investors, as history shows that market prices generally converge towards fair value as time passes.

Discounted cash flow (DCF) analysis is the best way I have found to identify this value. It estimates where a stock should trade by forecasting future cash flows and discounting them back to today.

The more uncertain earnings forecasts are, the higher the discount applied. Differences in assumptions relating to this factor and others are why analysts’ DCF modelling can vary. However, based on my DCF assumptions — including an 8.4% discount rate — Computacenter shares appear 49% undervalued at their current £41.65 level.

That points to a fair value of £81.67 — nearly twice the current price. And because of the trend for prices to converge to fair value over time, this suggests a potentially superb buying opportunity if that DCF modelling holds good.

How does the profit growth profile look?

Sustained profit rises over time are the key driver for any stock’s price in the long run. There are risks here for Computacenter, of course, as with any business.

One is that weaker corporate IT spending — especially in the UK, Germany or the US — could pressure margins. Another is that supply‑chain issues in its technology sourcing division could disrupt delivery schedules.

Nevertheless, analysts project that its profits will increase at an average of 12% a year to end-2028 at least.

Do the results support this view?

Its full-year 2025 results look highly supportive of these forecasts. Revenue rose 33% year on year to £9.194bn — underlining the reason why it is often known in financial circles as ‘the invisible giant’. The growth here was driven by exceptional technology sourcing demand across North America.

Gross profit increased 11% to £1.144bn, while adjusted net funds — effectively the free cash flow position — climbed 26% to £606m. The numbers reflected strong cash generation and disciplined working‑capital management.

Crucially, as well, the committed product order backlog surged 200% to a record £7.1bn. The stunning rise reflected the depth of demand across all geographies for the firm’s offerings. And it provides powerful visibility for continued earnings growth ahead.

My investment view

For value‑focused investors, the combination of strong cash generation, rapid backlog growth and a clear DCF‑based undervaluation makes Computacenter hard to overlook.

Its scale, resilience and long record of steady profit expansion suggest the market has yet to fully recognise the quality of this newly‑promoted FTSE 100 giant.

With the stock still trading well below fair value on my modelling, I will buy it very soon and think it well worth other investors’ consideration too.

Should you invest £5,000 in Computacenter Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Computacenter Plc made the list?

Simon Watkins does not hold any positions in the companies mentioned.

The post Around £41 now, here’s where this undervalued newly-promoted FTSE 250 tech provider ‘should’ be trading today appeared first on The Twelfth Magpie.

In fact, £288 a month, the average amount UK households set aside each month, is all it takes. Here’s how…

What £288 a month can build

Let’s start with a simple low-cost index fund tracking the FTSE 100. While investments are never guaranteed, history shows that, over the long run, investors can expect to earn close to 8% a year.

Invest £288 every month at that rate, and after 17 years of consistent saving, the portfolio would be worth around £124,357.61. Then, following the classic 4% withdrawal rule, that translates into a £4,974.29 annual passive income.

Not bad. But with smarter stock-picking, the results can be dramatically better.

How to accelerate the journey

Computacenter‘s (LSE:CCC) a perfect example of stock-picking done correctly, and is one of the UK’s most impressive long-term compounders.

Over the last 10 years alone, the IT infrastructure and services provider has delivered an average annualised total return of 21.1% – almost triple the market average.

Anyone drip feeding £288 a month at this double-digit rate for 10 years is now sitting on a portfolio worth £116,265.43. And if Computacenter continues to follow its current trend for just one more year, that same portfolio will grow to £147,125.21 thanks to the power of compounding.

In terms of passive income, this translates into a £5,885 annual inflow. So can it happen?

Is the risk worth the potential reward?

The most recent trading update painted an impressive picture. In the first quarter of 2026, Computacenter delivered results “significantly ahead of the prior year and well above expectations”, with Technology Sourcing revenue surging on the back of hyperscale customer demand from both North America and the UK, including a wave of AI-related project completions.

Management subsequently upgraded its full-year guidance, now expecting results “comfortably ahead of market expectations”, which currently sit near £291.3m in adjusted pre-tax profits.

With a committed product order backlog remaining strong and customers ordering IT hardware further in advance than usual to secure supply, the near-term pipeline looks robust.

However, there are some key risks to keep an eye on.

First, while Professional Services is growing strongly, Managed Services revenue declined 2.4% in 2025 – a trend that’s since continued into early 2026. Since Managed Services carries structurally higher margins than hardware supply, any prolonged weakness there could weigh on profitability even as revenues climb.

Another factor to watch is that Computacenter’s Technology Sourcing boom is partly being driven by customers ordering hardware early due to component shortages.

Once customers have stocked up, demand could fall drastically as customers switch to a de-stocking approach, creating some pretty tough comparables for Computacenter in the process.

The bottom line

Computacenter’s a genuinely high-quality business with a long track record of delivering for shareholders. The current momentum’s real, and the AI infrastructure tailwind driving hyperscale demand doesn’t seem to be going away anytime soon.

That’s why, for investors seeking to build a meaningful passive income, I think considering this stock could be a very good place to start digging. And it’s not the only compounder on my radar right now.

Should you invest £5,000 in Computacenter Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Computacenter Plc made the list?

Zaven Boyrazian does not hold any positions in the companies mentioned.

The post How to invest £288 a month in UK shares to target a £4,974 passive income for life appeared first on The Twelfth Magpie.

In fact, since the start of the year, the index is up 4.6%, turning a £3,750 investment into £3,922.50. That’s a respectable gain for index investors in the space of just five months. But it pales in comparison with what some smarter stock pickers have earned.

One standout is Computacenter (LSE:CCC), which has climbed 58.8% over the same period. That means the same £3,750 investment is now worth £5,955!

So what’s behind this sharp outperformance?

Why Computacenter shares are on the march

As a quick crash course, Computacenter’s an IT services and technology partner that helps large organisations buy, manage, and support their hardware, software, and cloud infrastructure.

The firm sits in the middle of the enterprise tech machine, helping businesses keep their systems running and their digital projects moving. And it earns its revenue from a mix of product sales, services, and long-term customer relationships.

It’s far from a flashy artificial intelligence (AI) pure play. But it does benefit when businesses keep spending on technology modernisation, infrastructure refreshes, and managed services. As a result, the aggressive build-out of AI infrastructure has proven to be quite a powerful tailwind.

Computacenter’s latest first quarter trading update puts this momentum on full display. Trading performance has exceeded expectations with gross invoiced income rising 22% rate on a constant currency basis, and services revenues continuing to build. Thanks to hyperscalers, North America was especially strong, while the UK and Germany also contributed to the stronger-than-expected start to the year.

With robust demand emerging from across the board, the stock has unsurprisingly taken off. And since this momentum stems from a series of widespread spending upgrades rather than any single large lucky contract, the quality of these newfound profits appears to be fairly high.

Given that AI infrastructure spending is showing little signs of slowing, and that Computacenter is uniquely positioned to profit from the second wave of AI software integration, the growth so far might just be the tip of the iceberg. So is this a no-brainer?

Understanding the risks

The bull case for buying shares today is largely driven by the expectation that companies will continue to spend on AI and other technologies, driving up demand for Computacenter’s services.

While I remain confident this scenario seems likely, it’s important not to lose sight of the fact that Computacenter is still a cyclical business whose fate is ultimately tied to enterprise IT budgets.

If customers delay hardware refreshes, cut back on tech projects, or become more cautious on AI spending, growth could slow quickly. And following such a strong share price rally, that could spark some unwanted volatility.

Even so, Computacenter has shown that it can adapt and capitalise on major opportunities when they emerge. That points to talented execution skills from the leadership team. And providing the group remains disciplined, there could be considerably more room to grow from here.

That’s why, despite the risks, I think Computacenter shares are worth a closer look.

Should you invest £5,000 in Computacenter Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Computacenter Plc made the list?

Zaven Boyrazian does not hold any positions in the companies mentioned.

The post £3,750 invested in the FTSE 250 at the start of 2026 is now worth… appeared first on The Twelfth Magpie.

Today, I’m homing in on two examples and asking if this great run of form can continue.

Beating expectations

Shares in Bloomsbury Publishing (LSE: BMY) are firmly in demand. They’re up nearly 40% in 2026 alone.

This isn’t a complete surprise. Full-year revenue of £325.9m might have been down compared to the previous year (due to “exceptional sales” of books by Sarah J. Maas in the latter), but it still beat analyst expectations. The firm’s Academic and Professional division has also been performing well, thanks in part to AI licensing.

Naturally, there is no guarantee this will continue. Literary trends come and go. Popular authors take time to write and earnings will fluctuate. This helps to explain why holders didn’t have such an easy ride in 2025.

But personally, I’m optimistic about the outlook.

I’m bullish on Bloomsbury

Changing hands at a forecast price-to-earnings (P/E) ratio of 14, Bloomsbury isn’t the screaming bargain it was a few months ago. But it still doesn’t look overvalued when we consider what’s coming up later this year.

The forthcoming Harry Potter television series will likely bring new generations to read the books. Pre-orders of the next two titles from the aforementioned Sarah J. Maas have also been described as “exceptional” (that word again!). On top of this, the balance sheet looks robust, and the business has grown its dividend every year since 1994.

So, no, I wouldn’t be surprised if recent form continues. Interestingly, Deutsche Bank has a price target of 760p on the stock. That’s 16% above where it is as I type (29 May).

Regardless of whether it gets there in 2026 or not, I still think this stock is worth considering for the long term.

Another FTSE winner

Also hitting a 52-week high is FTSE 250 member Computacenter (LSE: CCC). The independent technology and services provider’s value has climbed more than 50% in 2026 alone.

Catalysts behind this firm’s purple patch include increased corporate spending on IT and strong growth in North America. April’s trading update contained all the magic words that investors look for:

The Group delivered a strong performance during the first quarter, which was significantly ahead of the prior year and well above our expectations.

But it wasn’t just this that got the market excited. Due to a strong order backlog, Computacenter stated that it expected “a much stronger performance in the first half of the year than previously anticipated“.

But is it overvalued?

Now, at least some of the above will be priced in. After all, the shares already trade at a forecast P/E of 21. That’s not ridiculously expensive, but it does increase the pressure on management to continue executing to a high standard. It’s also worth noting that margins in this line of work have been consistently very low, at least relative to other companies in the tech space.

Even so, momentum is a powerful beast. With the AI story showing no signs of slowing down just yet, I suspect we could see more buyers pile in before half-year results arrive in early September.

Should you invest £5,000 in Bloomsbury Publishing Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Bloomsbury Publishing Plc made the list?

Paul Summers has no position in any of the shares mentioned.

The post At 52-week highs, here’s why these FTSE stocks might continue surging appeared first on The Twelfth Magpie.

Looking for beaten-down shares that have the potential to rebound? Here are two names to check out.

A blue-chip FTSE 100 name ‘on sale’

First up, we have banking powerhouse HSBC (LSE: HSBA). It’s currently trading for around 1,180p, down from 1,400p in late February.

Now, while this is very much a ‘blue-chip’ FTSE 100 stock, it is a little risky. That’s because banks are vulnerable to economic weakness and the huge spike in oil prices could potentially lead to a slowdown.

Another risk we need to consider here is AI-related layoffs. These could compromise banks’ mortgage books in the years ahead. But there’s a plus side to this risk too (more of that below).

Looking past these risks, there’s a lot to like here, in my view. For a start, HSBC is focused on higher-growth areas of banking such as wealth management and financial services in Asia.

Second, the company is using the aforementioned AI to become more efficient. Last week, it came to light that the company is planning to shed 20,000 of its own roles in the years ahead.

Third, it looks cheap after the recent market sell-off. At present, the price-to-earnings (P/E) ratio is under 10.

Finally, we now have a dividend yield of around 5%. So, there’s a substantial amount of income on offer.

Given all these positives, I believe the stock is worth a closer look right now.

A FTSE 250 stock for the tech boom

The other stock I want to highlight is Computacenter (LSE: CCC). It’s a FTSE 250 company that helps businesses and government organisations across the world with their IT infrastructure (servers, networking, cybersecurity, etc).

Earlier this year, it was trading above 3,300p. Today, however, it can be snapped up near 2,950p.

Computacenter has quite a bit of operational momentum at the moment. Because right now, organisations are scrambling to upgrade their IT systems for the AI era.

We can see this in the company’s results for 2025, which were posted earlier this month. For 2025, adjusted operating profit was up 11.3% year on year.

Note that the company ended 2025 with a record product backlog of £7.1bn. This bodes well for near-term performance.

It’s worth pointing out that an economic slowdown is a risk here too – this could see companies spend less on technology. AI is also potentially a risk – in the long run, businesses may be able to bypass companies like this using AI agents.

With the stock trading on a P/E ratio of about 15 and offering a yield of around 2.7, however, I see appeal. I reckon it’s worth considering as a play on the tech boom.

The post 2 top stocks to consider buying after this week’s FTSE carnage appeared first on The Twelfth Magpie.

That’s terrific news for those getting a bit fed up with their job and want to quit working sooner rather than later.

So let’s say a 40-year-old today wants to quit work just as soon as they can access their SIPP at 57 in 2043 (assuming the age requirement doesn’t change from 2028 onwards). How much money could be accumulated by starting investing £500 a month from today?

Crunching the numbers

In 2025, the FTSE 100 delivered its strongest returns in over a decade, at over 25%. But sadly, that’s a bit of an outlier. And historically, the UK stock market’s generated closer to 8% annualised returns over the long run.

But even at 8%, a SIPP can grow substantially over 17 years. For someone paying the Basic rate of income tax, every £500 deposit will receive 20% tax relief courtesy of the government.

That means instead of £500, an investor will have £625 of investable capital each month. And investing that amount each month at an 8% rate of return will compound into £269,873 by 2043.

Following the 4% withdrawal rule, that’s enough to generate a retirement income of £10,795. Combine that with the £12,548 State Pension, and the total comes to £23,343 a year – more than enough to meet minimum retirement living standards even after stopping work early.

That’s certainly not bad, but by aiming for higher returns through stock picking, investors can potentially do much better.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Maximising wealth

Instead of relying on simple index trackers, skilful investors can opt to buy shares of specific individual businesses. Why? Because by exclusively owning the best businesses, a portfolio can earn significantly better returns than 8%. And anyone who spotted the opportunity with Computacenter (LSE:CCC) 17 years ago, knows this firsthand.

Following a successful expansion into the US market as well as transitioning beyond just IT reselling to include higher margin value-added services, shareholders of this UK tech enterprise have earned a staggering 3,862% total return.

On a yearly basis, that’s the equivalent of a 24.2% average – enough to transform £625 a month into a £1.79m SIPP!

Still worth considering?

With a market-cap of £3.2bn in 2026, it’s unlikely that Computacenter shares will continue generating a 24.2% annualised return between now and 2043. But that doesn’t mean the growth story’s over.

Businesses worldwide are rapidly adopting artificial intelligence (AI) technologies, with hyperscaler data centres investing heavily in new infrastructure. That’s a tailwind Computacenter’s already been busy capitalising on, driving 32% growth in gross invoiced income in 2025 alone.

That’s certainly exciting, but it’s worth remembering that IT spending’s ultimately cyclical. The AI gold rush will eventually start to slow. And while businesses will undoubtedly continue to need IT-related support and services, cyclical downturns will surely put pressure on both Computacenter’s share price and dividend.

Nevertheless, with a superb track record of navigating through IT market downturns, investors may still want to consider this business further for their early-retirement SIPP portfolios.

The post Want to retire? Investing £500 a month in a SIPP unlocks a pension of… appeared first on The Twelfth Magpie.

The driver this time is a sparkling trading update ahead of full-year results, announcing a 32% revenue surge at constant currency. The gains are mostly driven by the firm’s Technology Sourcing division, which saw a 38% gross invoiced income rise.

AI profit potential

There was one immediate standout for me. The update said: “We are particularly pleased with our execution in North America, achieving consistently strong growth throughout the year with both enterprise and hyperscale customers“.

Hyperscale customers — I like that bit. Nobody can have missed the AI technology surge. And along with all those souped-up processing chips and large language models, the business needs infrastructure.

Computacenter is all about providing the IT hardware — the computers, the networks, and all the rest — that the tech industry runs on. And much of the software to control it it all. It offers strategy, advisory and management services too.

Old-time investors like to hark back to the California gold rush days. Back then, some made it big and some went bust. But the traders selling the picks and shovels pocketed a bundle. Companies like Computacenter are the picks and shovels sellers of the AI revolution.

What next?

Full-year results aren’t due until 26 March, but it sounds like they should be worth waiting for. With this latest announcement, management said “We now expect adjusted profit before tax for 2025 to be no less than £270m, comfortably ahead of market expectations“. Analysts had been forecasting between £243m and £259m.

Net funds at the end of December reached £600m, excluding IFRS 16 lease liabilities.

Looking forward to 2026, the board also told us: “We exited 2025 in a strong position with a committed product order backlog across all geographies at the end of December which is significantly ahead of both our position in December 2024 and at the end of June 2025“.

Cheap at the price?

The biggest opportunity also brings what I see as the main danger. Never mind an AI bubble bursting, if there’s even a slowing of spend in the coming year it would could see investors turn away from tech stocks. We also have to be keenly aware that trade with the US is not exactly smooth sailing these days.

And Computacenter being a relatively small FTSE 250 company might make large investors less confident. But I think the share price valuation has enough safety to cover the risk. We’re looking at a forecast price-to-earnings (P/E) ratio of 20 based on the latest share price and my estimated update for the earnings consensus. I think that’s fair.

Investors who want a piece of the future AI pie, but with less risk than going for the leading-edge Nasdaq techies, might do well to consider Computacenter.

The post Why did this flying FTSE 250 growth stock just jump another 10%? appeared first on The Twelfth Magpie.

So I asked ChatGPT to eavesdrop on what stock market analysts are talking about, and that’s given me a headstart on some ideas to check further for myself.

Business services leader

Rentokil Initial (LSE: RTO) is getting a fair bit of love, as 12 out of 18 analysts recommend it as a Buy — with only one rating it a Sell. Interestingly, it doesn’t seem to be based on any obvious short-term undervaluation.

Analyst forecasts put the shares on a price-to-earnings (P/E) ratio of 38, which might look a bit steep. And there’s a forecast dividend yield of just 2% on the cards. But those same analysts expect Rentokil’s earnings to ramp up over the next few years — growing 60% between 2024 and 2027.

In just three years, that would be quite some performance. And it could drop that P/E to 24, which looks better value for a solid growth stock.

It comes on the back of a predicted surge in the pest control business. Some are predicting 5%-6% annual global market growth. It’s all about rising wealth and a growing need for urban hygiene. Rentokil also has its fingers in a number of business services pies around the globe.

So is it really one of the best stocks to buy now? Today’s valuation is the biggest drawback for me. But it’s possibly the best in its field, and I rate it a definite long-term consideration.

IT infrastructure demand

Computercenter (LSE: CCC) is also raising investor interest. Again, it’s not much of a dividend stock with a forward yield of 2.3%. But with AI advances driving increasing demand for computer and network-related infrastructure, is a P/E of 19 too high? And what if it drops to 16 by 2027 as analysts predict?

With earnings expected to grow close to 30% in the next three years, I could see that as cheap. Especially when we see the high growth stock valuations of tech companies closer to the leading edge of AI. There’s one thing I particularly like about a company like Computacenter… whoever wins the AI wars, everyone will need the equipment, the connections, and all the rest of the infrastructure.

It is however, a very competitive business. And if any AI bubble really does burst as some fear, the fallout could cause some pain. The company also cautioned us, at Q3 time, of “the ongoing uncertain geopolitical and macroeconomic backdrop“.

But the update also spoke of “strong momentum in North America driven by continued volume growth with both enterprise and hyperscale customers“. And that could be key to long-term growth.

The potential IT demand has to make this a stock to consider buying in 2026 too.

The post Which are the best UK stocks to buy right now? Here’s what the experts say… appeared first on The Twelfth Magpie.

This is where dividends come to the rescue. While investing in the stock market isn’t risk-free, it does open the door to many potentially lucrative opportunities – many of which require minimal effort to exploit. And best of all, by using a Stocks and Shares ISA, all of it can be earned entirely tax-free.

With that in mind, let’s explore how investors can aim to transform a £20,000 ISA into a £12,000 tax-free passive income.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Making a plan

On average, dividend-paying UK shares offer a yield close to 4%. That means investing £20,000 would unlock an £800 second income overnight.

It’s certainly a nice start, but it’s a far cry from the £12,000 target. That’s why, instead of taking these profits right away, it might be smarter to let them automatically reinvest, compounding the wealth-building process.

When combined with capital gains, UK shares have historically generated a total average annualised return close to 8%. And £20,000 left to compound at this rate for 34 years would grow into £300,000 – enough to unlock that £12,000 passive income at a 4% yield.

Of course, waiting around for over three decades isn’t a lot of fun. So let’s speed the process up with some small monthly top-ups.

By investing a further £250 each month, the timeline is slashed to just 22 years. Those able to contribute £500 each month would be able to reap the rewards in just over 17 years.

But we can still speed this up even further.

Picking winning investments

While the stock market might have generated an average return of 8%, there are plenty of investments that have vastly outperformed. And those who can identify these winners early can go on to build phenomenal levels of wealth.

Take Computacenter (LSE:CCC) as a prime example to consider.

Over the last 15 years, the IT services enterprise secured its critical position within the technology value chain for businesses looking to digitalise and modernise their operations. The result? Shareholders who reinvested their dividends have earned a 1,117% total return since December 2010.

That translates into an 18.1% average annualised return. And it’s enough to transform a £20,000 ISA into £300,000 with £250 monthly top-ups in just 12 years instead of 22.

Today, the business continues to enjoy strong momentum, particularly in North America, where hyperscalers continue to invest aggressively in AI infrastructure. As such, the firm’s order book continues to expand while free cash flow is on the rise, resulting in ever-increasing dividends and buybacks.

Of course, even with its strengths, Computacenter still has risks. The competitive landscape for IT sourcing is growing increasingly intense. And if macro uncertainties dampen customer demand, delays in IT spending could start to emerge, harming the group’s performance.

Nevertheless, with a stellar track record of navigating through both the peaks and troughs of the IT market cycle, Computacenter is definitely a stock I think is worth considering when building a second income portfolio. And it’s not the only enterprise I’ve got on my radar.

The post How to aim for a £12k second income starting with a 20k ISA appeared first on The Twelfth Magpie.