Investment Column: Hold on to Logica, even as revenues fall

Our view: Hold


Share price: 121.7p (+6.6p)

Most companies are looking at any way to cut costs during the downturn, which puts a company like Logica, one of the biggest UK-listed IT service providers, in a strong position.

Yet, it has not been all plain sailing for the group, which sets out to save its clients 10 per cent in the first year, as its two main operations have experienced a rather different recession.

The growth has come in outsourcing, which the financial director calls the "key to riding this recession out," and is a business that has good visibility for future revenues. It provides clients with outsourced billing and payment systems and infrastructure management, and says its growth prospects are good as clients increasingly looked to Logica to manage more of their internal systems. The group also has firm control of its costs and is in the middle of a cutting drive, reducing headcount and selling off property, which has prevented particular margin weakness.

This was offset, however, by the market weakness in its consulting and professional services arm. As a result, Logica revealed yesterday that revenues in the third quarter had fallen by 4 per cent to £862m and added that it expects full-year numbers to fall by 3 per cent.

The group seems pretty well hedged with the two arms of the business and its clients well spread. As financial services clients have weakened, the public sector, energy and utility and telecoms have improved. It also has a solid geographical spread.

The group is bound to benefit if mergers and acquisitions return with a bang, and will be in prime position to help companies deal with a series of forthcoming regulations.

Yet, analysts fear that profit growth will not be huge next year and Evolution Securities rates the stock at 11.7 times prospective full-year earnings, which puts it in line with its peers. Probably worth holding for now.

FirstGroup

Our view: Buy

Share price: 393.9p (+18.7p)

It has not been an easy year for FirstGroup.

Recession whacked commuter train travel to such an extent that the two London franchises – First Great Western and Capital Connect – have needed £70m-worth of revenue support from the Government between them. Thanks to the help, the rail division managed a 5 per cent rise in profits, according to yesterday's half-year results. But buses have suffered even more. Although revenues scraped up 1.2 per cent to £586m, profits were down by 15 per cent on falling passenger volumes. Overall, including the US business, FirstGroup managed profits down 14 per cent to £27m on revenues up 4.8 per cent to £2.9bn, in line with analyst expectations.

But Moir Lockhead, the chief executive, is still upbeat, and the board has boosted the interim dividend by 10 per cent as a sign of its ongoing confidence.

The plan for £200m in cost-cutting is on track, says Mr Lockhead. As is the plan to raise £100m in cash to pay down the £2.4bn debt that is still slightly spooking analysts even though it is financed to 2010, and – at three times ebitda – comfortably below covenant-triggering levels. "It is a good performance in a really tough economic climate," Mr Lockhead said yesterday.

Despite the recent difficulties, FirstGroup's business is balanced insofar as around half of revenues come from medium-term contracts not affected by the economy.

And the shares have underperformed the market by nearly 25 per cent, according to Gert Zonneveld at Panmure Gordon. With a price to earnings ratio of 9.1 times, and a yield of 5.5 per cent, FirstGroup is a buy.

Cobham

Our view: Buy

Share price: 225.7p (+3.3p)

Cobham, the defence and aerospace electronics group, did not add much with yesterday's interim management statement.

Revenues for the first nine months have grown strongly, broadly in line with expectations.

And the company also provided a list of contract wins, only one of which – the $1.2bn (£726m) US army intercom – is anything out of the ordinary. Debt has jumped to £468m from £442m on account of payment of July's final dividend, adverse foreign exchange movements and deferred acquisition-related payments.

But Cobham's numbers are still respectable, with a price-to-earnings ratio of 10.9 times and yield of 2.9 per cent in 2010, according to number crunchers at Evolution Securities. The shares had a sluggish start to this year, before taking off in the last couple of months.

Although the near future is unlikely to carry on at such a pace, Cobham is still a buy.

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
i100

Other places that have held independence referendums
Arts and Entertainment
Jack Huston is the new Ben-Hur
film

It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959

PROMOTED VIDEO
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
News
news

Arts and Entertainment
Blossoming love: Colin Firth as Stanley and Emma Stone as Sophie, in 'Magic in the Moonlight'
film

Actors star in Woody Allen's 'Magic in the Moonlight'

News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
News
peopleThe Times of India said actress should treat it as a 'compliment'
Arts and Entertainment
Maxine Peake plays Hamlet at Manchester's Royal Exchange
theatreReview: Maxine Peake brings emotional ferocity to Shakespeare's starring part
News
ebooksAn unforgettable anthology of contemporary reportage
News
news

Watch this commuter wage a one-man war against the Circle Line
Property
Home body: Badger stays safe indoors
lifeShould we feel guilty about keeping cats inside?
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

Travel
travel

...and the perfect time to visit them

Sport
Jonas Gutierrez (r) competes with Yaya Toure (l)
football

Newcastle winger reveals he has testicular cancer - and is losing his trademark long hair as a result

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week