Wednesday, 14 May 2008

Logica's Q1 IMS

Logica’s IMS seems to have been well received with the shares up 5p/4% at 130p at 9.00am.

Q1 revenue is up 3.6% at £855m – ahead of most analyst expectations largely due to currency. Logica has reaffirmed 2008 guidance - i.e. revenue growth c 3% at constant currency and margins c7.6% unchanged year-on-year. Book-to-bill is 1.06:1 which is marginally on the right side for future growth.

Logica says “We continue to see a few examples of slower spending in an uncertain market environment but overall market activity levels appear resilient and underpin our confidence in our 2008 guidance. We remain alert to changes in customer sentiment and are carefully monitoring utilisation levels and recruitment. We are continuing to build flexibility in our resourcing model through the use of subcontractors and our blended delivery model.”

- Nordics £236.2m. "Slower growth" in Sweden was offset by good growth in Finland and Norway
-UK £174.7m with Public sector revenue up 7.3% (they signed two orders totalling £31.5 million with the Home Office) but commercial revenue down 8.3% where “Financial Services continues to be the most challenging sector”.
- France £170.5m where "demand remains good"
- Netherlands £139.5m where Public sector is "the main driver of growth".
- Germany £50.0m reported strong 11.4% growth in Q1 but slower recruitment along with higher attrition means that this growth rate is unlikely to be sustained
- International £85.0m revenue was up 7.6% “ driven by good growth in Australia, Belgium and Central Europe and an exceptional performance in Brazil

My View?

In my Views on Logica’s Business Review on 22nd Apr 08 I made the following statement

"Logica’s problem is that they are Logica. They are a mid-sized player doing lots of different things in lots of vertical areas in lots of countries in Europe. They are a mid-sized generalist’. For many years they have been a ‘mid-sized generalist’ and if Green’s plan is followed they will continue to be a ‘mid-sized generalist’.If you have read Holway’s views over the last 20 years you will know that being a ‘mid-sized generalist’ is an increasingly uncomfortable place to be."

This “mid-sized generalist” tagline got picked up by many other analysts and repeated in their own reviews. Given yesterday’s (inevitable) news of HP+EDS, the “mid-sized generalist” position has got an EVEN TOUGHER place to be. I’d have preferred Andy Green to “Get niche” but he’s set out his plan and I wish him every good fortune in its execution. Well, I am a long term Logica shareholder afterall!

I contend that Andy’s objective is to clean up Logica for a sale rather than turn it into a Global Tier One player (Martin Read’s ambition). I forecast that such a sale will happen within the next two years. If Andy can avoid any major execution hiccups, then investors should see a reasonable up-tick in the share price. If that happens, Andy can justifiably claim “Job Well Done” and I, for one, will give him justifiable plaudits.

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