Monday, 3 November 2008

Shares Indices in October

(By Richard Holway) You probably don’t need reminding that October was a horrid month on the stock markets and an even worse month for tech stocks. The FTSE100 ended the month down 11% but the Techmark100 was off 15% and FTSE SCS (UK) ended down 18% (28% YTD). However, it wasn’t the worst single month in my records. In November 2000, the FTSE SCS Index fell 31%. As I said in my History Lesson post a week ago, in the last downturn we didn’t get just one month of share price falls – it just kept going down and down and down for over three years.

Portrait and Parity (down c60%) and Morse (down c50%) were the worst of the performers. Of the larger SCS stocks, Logica was particularly badly hit with a 37% decline to 68p (42% YTD). Logica could be more exposed than most to the economic slowdown; particularly as it has fewer offshore resources to cushion the competitive pressure on fee rates.

Of course, not all SCS stocks performed badly. Autonomy (one of my favourites, I admit) was pretty much unchanged in October and, I note, is up 6% this morning. I listened to Dr Mike Lynch (CEO at Autonomy) on Bottom Line on Radio 4 this weekend (to Listen Again Click here) He gave a good set of reasons why Autonomy actually did better, with even faster sales cycle times, in the current financial climate. He also said how much easier it was to save costs by hard bargaining on everything from advertising space to exhibitions.

Falls in the FTSE SCS Index were eclipsed by the FTSE Telcom Fixed Line Index – down a massive 28% in Oct and 53% YTD. Of course, the main reason for this (as it represents most of the weighted index) was BT. I wrote of about Francois Barrault resigning as CEO of BT Global Services on Friday. The associated profits warning pushed BT shares down as a massive 19% to 115p on Friday; that’s a 29% dive in October. This means that BT is now lower than its 130p IPO price back in that Granddaddy of Thatcher privatisations in1984. The weekend press has been full of comment on BT. Ian Livingston has a mountain to climb in restoring battered credibility. I really do hope that BT does now face the real issues at BT Global Services. Although cost cutting is both needed and overdue, it is not the solution. BT Global Services has to decide what type of IT Services company it wants to be. The answer will decide if it should embark on a divestment or acquisition programme. Although, I have to admit that with the share price where it is, the latter looks pretty unlikely.

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