Logica – Always the bridesmaid never the acquisition
Poor results dropped Logica’s share price by 9% and then once the market’s really got to grips with the cited problems it dropped again, wiping 15% off the stock. Inevitably the City analysts and journalists hawk out the same old “Logica subject to take-over” story. If you hold your breath and believe for long enough…
True Logica is an undervalued gem but speculation that Infosys or indeed any Indian offshore player is planning to purchase them is simply wrong. The Indians certainly have the money but they will not take on the onshore “liabilities” of anything in excess of $500m and Logica is worth far more that. Why would they introduce the drag factor of western margins into their astonishing returns?
All Andy Green’s efforts seem to be failing to capture the moment in the market and that deserves closer scrutiny. To say that “slower demand than we expected” in Sweden is to fly in the face of the continuing IT and Outsourcing boom that is the Nordics at the moment. The various organs of the Swedish state are heavily investing in externalisation. Ditto the manufacturing, retail and banking sectors. In Norway the recently merged EDB ErgoGroup has stimulated a mini IT outsourcing boom in public and private entities. Denmark too is progressing several major initiatives and renewal of IT is consistent across all industries. Demand is far from slow. Are there other issues with the acquired WM Data bedrock company?
Benelux slipped back 3% in the third quarter however this is again not hard to reconcile. The old CMG customer base and service lines are to blame for this. There has been a lack of investment by Logica, and market demand for these services has changed significantly. However the IT market remains strong in the region.
Demand from UK government has been slower than expected due to government restrictions on expenditure. However the need for monumental change is there and the government framework agreements that Logica enjoys will see them securing parcels of work ahead of the likes of HP, CSC and others. The bigger questions lie with the mainstay UK market. Projects have got smaller and certainly more competitive, surely this should play to a smaller more agile player like Logica who should steal the march on the bigger players like IBM and HP.
Mr Green has an excellent company that needs to adjust to the new realities of the rate of change in this market.