Investment: Profits rise puts Sema back in the market's good books

SEMA, THE Anglo-French computer services group, yesterday moved to re-establish its growth credentials when it reported a sharp rise in pre-tax profits and stressed its exposure to the fast-growing areas of mobile telephony and electronic commerce.

In the year to December, Sema made a pre-tax profit of pounds 97.8m on revenues of pounds 1.25bn. However, the figures were distorted by the sale in July of BAe Sema, its defence systems joint venture, to British Aerospace. On an underlying basis, profits grew by 31 per while turnover rose 21 per cent.

The figures went some way to restoring the stock market's faith in Sema after an indifferent performance in previous years. The company pointed to booming demand from mobile phone operators for IT systems as one of the reasons for its growth. Sema reckons it has 16 per cent of this fast- growing market, making it the leader ahead of rivals such as Logica.

In the past year, Sema has established its credentials as a competitor for large contracts by winning the five-year deal to handle the Benefits Agency's medical services systems. Last year it won a contest to oversee all IT systems for the Olympic Games from 2002 to 2008.

Pierre Bonelli, Sema's chief executive, said 1998 was an "intense and pivotal year" in which the company "has reshaped itself to concentrate on its chosen high-growth markets and to continue to exploit its unique positioning as a provider of a complete range of services".

But analysts said Sema still had some way to go before it could truly measure itself against the US giants of the computer services industry such as IBM and EDS. They said the company still does not have a significant presence in the United States, even though it suggested more than a year ago it could afford to spend up to $1bn on a US acquisition. But Tidu Maini, Sema's vice-president, said the company was merely being prudent. "When the right opportunity comes up you can feel it, it's like a marriage," he said.

Another area of concern is the software products division, which is still losing money as a result of a major two-year investment programme to bring Sema's software up to speed.

William Bitam, Sema's finance director, said the division was likely to break even in the current year. But some observers are concerned that Sema's decision to mix products and services was a departure from the usual practice of IT services companies.

"My concern with Sema is how they are changing the personality of the company," said George O'Connor, an analyst at Granville. "In the past, London investors have proven their absolute love of service companies. If you go down the product track, the business becomes much more risky and, on the back of this, investors might start reviewing their portfolio."

Nevertheless, most analysts yesterday upgraded their profit forecasts for 1999 to about pounds 95m, reflecting the expected growth in telecoms and the potential benefits of Sema's joint venture with Broadvision, the US ecommerce software supplier. Most observers rate the shares, which edged up 1p to 741.5p yesterday after a strong run in recent months, a solid hold.

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