Outlook: Market's illogical response to Logica's hiccup

Wind power; Murdoch/Kirch  
Click to follow
The Independent Online

Martin Read, chief executive of Logica, spends "only" 10 working days a year on investor relations, which makes him quite an exception among the bosses of FTSE 100 companies. Many of them commit 30 per cent of their time or more to the tiresome task of trying to make the capital markets do what they want. Mr Reed, by contrast, prefers to spend his time running the business, and he has a notoriously low opinion of many of the analysts who cover his industry.

More chief executives might do well to follow his lead. Yesterday, however, it let him down. Shares in Logica plunged nearly 15 per cent to finish close to their post-bubble low after the company said it would make its numbers for this year. No, there's no mistake here. As part of a scheduled trading update, the company reconfirmed what is said at the annual general meeting a month ago that there would be good revenue growth this year with improving margins, a statement which only seems to underline the company's comparative resilience to the downturn in IT spending.

The only difference was that growth in the company's telecommunications business – which supplies text messaging and pre-pay systems to the mobile phones industry – won't be as good as previously thought. Why this came as a surprise to the stock market is anyone's guess, since the travails of the mobile phone industry are well known. At 30 per cent, the new forecast for growth in telecoms software can hardly be regarded as slovenly, and in truth it's the sort of figure that other suppliers would die for. What's more, declining telecoms growth has been offset by a rising public sector workload in outsourcing and other IT related business.

None of this impresses the City, which for some years now has been much more interested in Logica's mobile phones business than anything else it does. This is not entirely unreasonable, since telecoms account for 30 per cent of Logica's revenues and even more of its profits. Even so, Mr Read is failing to get the message through that there is more to Logica than text messaging.

Logica has been one of the great British success stories in IT over the past 10 years, and it is one of the last New Economy entrants to the FTSE 100 that still remains in the index. Much of that success is down to Mr Read himself, who's single-minded strategy and vision has transformed the company into something that might, just might, eventually become a global leader. Careful management and financial control, learnt at the feet of Arnold Weinstock, for whom Mr Read used to work, have complemented the clever targeting of fast-growing industries for software development.

To believe what was being said yesterday in the City, you'd think it was all over. Mr Read has lost it, was the general tone, and Logica is well past its sell-by date. It's bear market talk and until the business environment improves all round, there's not much that can be done about it. Shareholders can only hope that it doesn't persuade Mr Read to spend more time talking to the analysts, for as a long-term investment, Logica looks as promising as ever.

Wind power

A lot of hot air is spoken about wind power. One of the more outlandish claims is that it offers an easy solution to the twin problems of global warming and Britain's increasing reliance on gas imports from highly volatile regions of the world.

As an island nation on the north-western fringe of Europe, the UK should be well positioned to harness the power of wind, particularly of the offshore variety. Hence yesterday's announcement of plans to build Europe's biggest windfarm on Lewis in the Outer Hebrides. Even British Energy, which is best known as the UK's main producer of nuclear electricity, is a convert to the idea of wind power, which is why it has a half share in the Lewis project.

However, the contribution that nature can make to solving Britain's long-term energy needs has to be put into perspective. The Lewis wind farm, if the locals allow it to be built, will occupy 28,000 acres of land and will consist of 300 turbine towers with a theoretical capacity of 600 megawatts. That is about half the output of British Energy's Sizewell nuclear reactor.

But unlike Sizewell, which runs more or less non-stop, the wind cannot be relied on to blow in the right direction 24 hours a day. The actual output from Lewis, therefore, is more likely to be about 200 megawatts. To replace all of Britain's nuclear reactors with wind farms would mean covering an area the size of Yorkshire with turbines, and even then there would be a problem if the wind wasn't blowing.

The Stornaway Trust, on whose land the Lewis wind farm would be sited, may not care about the noise created by 300 turbines nor their impact on the tourist trade. But imagine having hundreds more farms scattered all along Britain's west coast.

Tony Blair's long-awaited energy review will heavily promote the increased use of renewable sources of energy, which has been construed by some as the death knell for any new nukes. What the leaked draft of the review actually says is that there are "good grounds for taking a positive stance to keeping the nuclear option open". Nuclear power remains handicapped by its higher cost and the problem of waste disposal. But if Mr Blair could end his infatuation with reprocessing – which both increases the lifecycle costs of nuclear plants and perpetuates the problem of nuclear proliferation – then we might be halfway to a balanced energy policy in which both renewables and nuclear have a role to play.

Murdoch/Kirch

He's well past pensionable age, his health isn't as good as it was, and he's up to his neck in debt. No, not Rupert Murdoch, but Leo Kirch, the German media tycoon. Of the two septuagenarians, there's little doubt who's in the better shape, and as Mr Kirch struggles to keep the creditors at bay, Mr Murdoch is waiting in the wings, ready to pounce. Since his failure to buy DirecTV in the US, Mr Murdoch has been casting around for other opportunities. As things stand, Mr Kirch seems to provide the best of them.

Mr Murdoch has already got a toe-hold through the 22 per cent stake BSkyB owns in Premier World, Mr Kirch's pay-TV platform. Tony Ball, Sky's chief executive, has become more and more exasperated by the way Premier is run. He either wants out or he wants further in but, for choice, since Sky is running out of road in the UK, he wants in. Mr Kirch's financial difficulties provide him with the perfect opening, since Sky has the right to require Mr Kirch to buy out the stake at cost.

If Mr Kirch cannot afford to do so, then Messrs Murdoch and Ball will demand their pound of flesh – control at least of Premier and possibly a bear hug of the whole Kirch empire, which includes nearly a half of Germany's terrestrial TV market. It's the sort of high-stakes game that Mr Murdoch loves and, what with the new baby and everything, it must be feeling like a second youth.

j.warner@independent.co.uk

Comments