Wednesday, 8 October 2008

Taking stock

(By Anthony Miller). Though tech stocks are mainly continuing their precipitous decline, it’s instructive to compare the performance of different types of player. The chart shows how some of the UK’s larger tech stocks we think are bellwethers for their sectors have performed so far this year (up to COB yesterday).

The differences are quite dramatic. We’re not surprised that our leading reseller, Computacenter, fared harshly, over 40% down ytd, with desktop spending among the easiest ‘tap’ to turn off. Misys, representing the banking software sector (OK, and also US healthcare – also not a great story) is about where the FTSE100 is, nearly 30% down ytd. Sage, with stronger recurring revenues, but very much exposed to the US economy, is down nearly 20%, sharing its slot with Logica (who will be talking to analysts this morning about its opportunities in “high growth markets”, so more on them later). But by far the least ‘injured’ among the top UK players is BPO leader Capita, which is less than 5% down.

I know we often sound like a broken record – and we are absolutely not making any stock recommendations (one way or the other) or giving investment advice – but Capita has routinely shown its colours in tough times. The lesson is all about long-term contracts, business diversity, tip-top management, never running loss-leaders, and so much more. No one, not even Capita can escape the very negative investor sentiment (indeed, is ‘revulsion’ too harsh a term?) in the market. But, as reflected in the Thought for the day piece below, it usually pays to go back to the fundamentals.

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