Investment Column: Logica is one to watch for the longer term
Friday, 28 November 2008
Andy Green, the chief executive of the IT consulting and outsourcing group Logica, was travelling between Sweden and Finland yesterday to talk to clients about the economic situation and how his company could help.
During the recession, Mr Green says Logica will increasingly position itself as an IT outsourcing company, which in the current economic climate is not a bad idea: outsourcing firms grew out of past recessions after proving that they could save struggling companies money. That message, however, is getting somewhat lost. While Mr Green is managing to persuade clients to provide more work, the market is not necessarily listening – and the company's shares have been trading 50 per cent down over the past three months.
Logica announced yesterday that it had renegotiated £420m of its syndicated loan facilities – no mean feat in the parched debt markets – taking the maturity of some of the group's debt to 2013, which should be good news. The stock market, however, was nonplussed and the shares hardly moved. Analysts at Blue Oar worry that the level of Logica's debt, considering that there is also an addition €348m of term loans, could mean that its dividend is cut. Those at Citigroup told clients to sell the "high risk" stock, saying that – trading at 8.3 times its 2009 price earnings ratio – the target price was 80p.
The IT sector is likely to struggle in a downturn, so you would expect those that service it to struggle too. Logica, however, is morphing into a more resilient company and, while the market has not yet spotted that in any serious way and the company's debt is high, it should be one to watch for the longer term. Hold.