Monday, 19 January 2009

SQS looking good in testing times

(By Anthony Miller). Cologne-based but AIM-listed testing services player, SQS, presaged its 2008 results with an ‘in line’ trading update this morning. CEO Rudolf van Megen also signalled ‘healthy’ trading conditions so far this year. We like testing services, particularly at a time when CIOs have to ‘make do and mend’. Changes to legacy systems need to be rigorously tested and this is a laborious and error-prone process to do manually. More after this morning’s concall.


What stood out for me on the concall is the benefit SQS is getting from its June ‘08 acquisition of Indian testing services player Verisoft (see SQS tests India – and a lot more besides!); they have already won 10 new clients who will use this centre. SQS also has an offshore outpost in Egypt concentrating on German- and French-speaking markets, which I suspect gives them an edge over the Indian players in these countries. With some 300 heads now offshore (of around 1,300 billable consultants) management made the point that they are now able to bid and win business at blended (onshore/offshore) rates that previously they would have had to walk away from. SQS clearly has the opportunity to massively scale up their offshore centres (they could go as far as 70% offshore), which should help protect margins from customer pricing pressure. We’ll look at SQS in more detail when they report prelims early March.

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