The IT services company LogicaCMG proved to be the latest beneficiary of the Ministry of Defence's military communications Skynet 5 contract yesterday when its shares shot up 3.5 per cent.
The £2.5bn deal made headlines last week after the British Government became the first in the world to outsource its military communications to a private company - the Franco-German defence giant European Aeronautic Defence and Space company (EADS).
In the case of LogicaCMG, the market seems to be catching up with old events. The company had flagged that it was part of the team given preferred bidder status on the contract - worth £80m to it over 15 years - about 18 months ago.
Of course, it is good news for LogicaCMG and proves it was right in predicting that deals from the public sector would be on the up. Revenue from the public sector makes up about a fifth of its total. The win is also perhaps proof that the merged company - of Logica with CMG - is better placed to win the big deals against its competitors than either business would have been alone. The key question for LogicaCMG, however, is when its core business of providing IT services will recover after customers, particularly in the telecoms and finance sectors, dramatically cut their spending.
While life is still clearly very tough, some glimmers of hope are emerging. Last week, the head of the research house Gartner said a "substantial" recovery in IT capital spending looked increasingly likely in 2004. The Gartner boss said increasing numbers of corporate IT managers planned to replace aging equipment and apply new technologies to improve efficiency.
There are also hopes that LogicCMG's mobile phone operator customers might start spending on IT systems again - all good news for LogicaCMG if it proves accurate.
Analysts are predicting LogicaCMG will make an underlying profit of about £100m this year on sales of about £1.7bn. Forecast earnings of about 9p for this year puts the stock, which has already trebled since April, on a multiple of about 30 times.
That is hardly cheap, although earnings predictions of about 13.5p for next year bring the rating down to a more affordable 20 times. Given the risks still attached to the recovery, the stock is a hold at best.
Bodycote worth brief flutter on bid talk
Bodycote International, the engineering company that started life as an underwear manufacturer, received some positive attention yesterday after rumours of a takeover bid surfaced. Shares in the company, which specialises in treating metals to protect them from heat exposure, rose more than 6 per cent on speculation that Greg Hutchings, the former chief executive of Tomkins, and John Chesworth, a former head of Bodycote, were talking to bankers about putting together a deal.
The unlikely duo refused to comment on the rumours, which were panned by Bodycote watchers, but they have raised questions over whether the company's fortunes are at long last starting to turn.
Since the manufacturing downturn first bit a chunk out of the company's business in 2000, a new management team has initiated a "self-help" programme of vigorous cost cutting after years of wanton spending on acquisitions and development projects.
The spending spree did, however, give Bodycote the number one position in many of its markets and there are now encouraging signs in some of them. Car production, for example, seems to be on the up, particularly in the US, where Bodycote gets 40 per cent of its business.
Its shares have been rising in recent months and, at 175.5p, Bodycote is trading on about 16 times 2003 earnings. This isn't cheap, but it will be 2006 before even Bodycote expects to see real recovery in markets such as aerospace.
Looking forward to 2004, its earnings multiple goes down to eight times, when markets are expected to begin improving. There is still some way to go before anyone can be convinced of an economic upturn, but Bodycote is a diverse business and a leading player that should allow it to capitalise on a recovery. That alone makes it worth holding on to.
Newsplayer deserves a frosty reception
Not even the promise of breakfast with Sir David Frost could persuade the market to stomach the shares in Newsplayer earlier this year. The online newsreel company that counts the veteran TV presenter among its directors sunk to a stock market low of just 2.6p in June as appetite for its video clips and old ITN news reports all but dried up.
But someone has been hungrier recently and yesterday the company confirmed it was talking to a group that is looking to invest about £1m in Newsplayer. This would involve the issue of new shares in the formerly struggling company at some 20p each. The company said it expects the deal, believed to be with a Far Eastern media billionaire, "to be concluded imminently".
Since Sir David threw Newsplayer a £300,000 lifeline last December, the group has benefited from an injection of an extra £1m of free cash via two separate share placements and a hefty research and development tax credit. The market for its product has been improving and its recent acquisition of the US internet services company, Global Media Services, has given Newsplayer more scale and enhanced its offering. The spread of broadband, which helps customers access the company's content faster, is another plus.
Although Alex Borrelli of its house broker Shore Capital states that "consumer spend in this area has been quite small" and sees potential for the company's products, with £3.5m of losses reported last year on a turnover of just £950,000, it would require a leap of faith to chase the stock, up 1.5p to 19p yesterday, any higher. Avoid.Reuse content