Monday, 26 May 2008

CSC returns to growth

Last week Computer Sciences Corporation (CSC) announced Q4 and FY08 full year results. Q4 revenues were $4.48b up 11% (or 7% on a constant currency basis). European revenue rose to $1.38 billion, up 12% (approximately 4% in constant currency) from $1.23 billion for the fourth quarter last year.

For the year, CSC revenues rose 11% to $16.5b. In constant currency that would be c7% and about 4% if you get back to pure organic growth excluding recent acquisitions (most significantly the acquisition of Covansys last year which gave them a 15,000-strong workforce in India). Still that’s better than the ‘no growth at all’ they reported in FY07.

However, as my (ex-) colleague Phil codling said in Ovum’s Straighttalk “CSC's deal signing performance raises some question marks, however. The sum of $13.3 billion in total contract value for the year is down on the $16.9 billion bagged in FY07. Bear in mind that $11.2 billion of the FY08 signings came from the public sector, which means just $2.1 billion came from CSC's global commercial interests. CSC says some signings have slipped into FY09 and reports a reasonable start to the year, but the low level of major commercial signings is undoubtedly a weakness the company needs to address”.

CSC doesn’t report UK revenues, but I’d guess that CSC UK has probably achieved a c10% growth – about twice the UK SITS growth rate - putting them on revenues of around £1.3b.

The potential disruption in the market caused by the HP acquisition of EDS, let alone the problems at Atos Origin, ought to act to CSC’s advantage. But we should all remember that CSC itself was put up for sale on a couple of years back. Personally I still reckon they would fall at the right price. .CSC has a market valuation of $7.6b – a PSR of just 0.36. Although CSC shares have performed well this year – up 20% at $48 – they have traded +/-20% of the current level for the last 5 years. CSC’s PSR (0.36) compares with the 0.55 that the HP deal put on EDS. Even Atos Origin (see other article) has a PSR of 0.49. I’m not suggesting that PSR is the only valuation metric – I’m pretty keen on profits and cash too! – but it might demonstrate how much upside there is at CSC right now; particularly if Big Eat Big consolidation takes hold.

CSC UK gets to Last Five in ID project

The UK team, under CEO Nick Wilson, will also be pleased/relieved to get to the Last Five of the ID project selection process . See Five survive the cuts as doubts grow about Government’s ID card scheme. It’s a bit of a peculiar short list as IBM, Fujitsu, Computer Sciences Corporation (CSC), Thales and EDS were the only ones left in contention after Accenture, BAE Systems and Steria had dropped out recently. Indeed, two of CSC’s own potential subcontractors on the ID project had also dropped out; Siemens six months ago and Unisys last month. The Times said “CSC said that it could deliver on the ID contracts and has “two organisations working with them on the ID Cards programme”, but it would not reveal their names.”

No comments: