Investment Column: Logica is one to watch for the longer term

Halma; Hogg Robinson
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The Independent Online

Our view: Hold

Share price: 66.5p (+0.75p)

Andy Green, the chief executive of the IT consulting and outsourcing group Logica, was travelling between Sweden and Finland yesterday to talk to clients about the economic situation and how his company could help.

During the recession, Mr Green says Logica will increasingly position itself as an IT outsourcing company, which in the current economic climate is not a bad idea: outsourcing firms grew out of past recessions after proving that they could save struggling companies money. That message, however, is getting somewhat lost. While Mr Green is managing to persuade clients to provide more work, the market is not necessarily listening – and the company's shares have been trading 50 per cent down over the past three months.

Logica announced yesterday that it had renegotiated £420m of its syndicated loan facilities – no mean feat in the parched debt markets – taking the maturity of some of the group's debt to 2013, which should be good news. The stock market, however, was nonplussed and the shares hardly moved. Analysts at Blue Oar worry that the level of Logica's debt, considering that there is also an addition €348m of term loans, could mean that its dividend is cut. Those at Citigroup told clients to sell the "high risk" stock, saying that – trading at 8.3 times its 2009 price earnings ratio – the target price was 80p.

The IT sector is likely to struggle in a downturn, so you would expect those that service it to struggle too. Logica, however, is morphing into a more resilient company and, while the market has not yet spotted that in any serious way and the company's debt is high, it should be one to watch for the longer term. Hold.


Our view: Buy

Share price: 174p (+8.5p)

Companies can cut back on a whole gaggle of things to lower their costs in a recession but one thing that cannot be axed, however, is safety equipment. That makes groups such as Halma, which makes safety products, a secure bet for investors in a downturn.

The company, whose range includes the likes of hazardous gas and leakage detectors, posted impressive interim results yesterday, the highlight of which was a 13 per cent increase in its pre-tax profits to £35.6m. Perhaps more importantly, with what is likely to be a nasty six months to come, the group, based in Amersham, Buckinghamshire, told the market it was upbeat about its prospects for the full year.

With the first investment box ticked, buyers might be a bit disappointed to learn that analysts at Halma's broker, Dresdner Kleinwort, downgraded their expectations for the stock, saying that it would reach just 195p this year, down from its previous forecast of 240p. As Halma's shares rose by 5.1 per cent yesterday, that target is now not too far off, and indicates that the market is already almost fully rating the stock. The experts at Investec almost agreed, saying: "We think Halma continues to deserve a premium valuation at this point of the cycle and, as such, we maintain our price earnings-based price target at 175p."

Ordinarily, punters should shrug their shoulders, sigh and count it as a missed opportunity before seeking the next undervalued stock. In these times of woe, however, investors will get a strong share by buying Halma, even at these inflated levels. To sweeten the pill, the company can point to 22 per cent growth in its emerging markets in the past six months and, more importantly for those seeking value, a 5 per cent jump in its dividend.

Now might not be the best time to buy Halma's shares, but investors seeking solace from a battering elsewhere would be getting a strong stock. We reckon that Halma is one of the last companies to set the alarm bells ringing. Buy.

Hogg Robinson

Our view: Cautious Hold

Share price: 12p (-1.5p)

You would be forgiven for assuming that companies wishing to cut down on costs would limit overseas trips by their staff. Probably so, but this does not yet seem to have had any impact on Hogg Robinson, the British agency which organises corporate travel. In its half-year results yesterday, the Basingstoke-based group reported a six-month pre-tax profit of £6.1m, up from £4.9m in the same period a year ago.

But before investors rush to call their broker, thinking they have found a trend-busting group, they should be warned that even its chief executive, David Radcliffe, reckons things will get worse before they get better. Hogg Robinson's trading update said: "Planning for the macroeconomic climate is to be even more challenging, but we are hopeful of finishing the year within expectations." While "hopeful of" is not the same as "expecting to", Mr Radcliffe says the group is being managed with the recession in mind and that only a braver man would predict anything with any certainty.

Hogg Robinson's stock has lost nearly 80 per cent of its value in the past year as investors fret about the group's chances in a downturn. While things are undoubtedly tough, the company has shown it is able to mitigate the slowdown well and perhaps before too long there might be a bargain to be had. Cautious hold.