Harvey Nash shares fall 5% on warning

SHARES IN Harvey Nash, the IT recruitment services group, dropped more than 5 per cent yesterday as the group surprised the City with cautious remarks about IT investment in the run-up to year 2000. In spite of a 70 per cent jump in full-year pre-tax profits, well above analysts' expectations, the shares came off 17.5p to close at 322.5p.

The share price fell after Harvey Nash acknowledged that UK demand for IT personnel had weakened in autumn last year. The group said there were signs of a fresh pick-up in demand over the past month. "However, we expect companies to take a cautious view of IT investment in 1999, particularly as the millennium approaches," it said.

David Higgins, joint managing director, said the warning should not be exaggerated. "We are already hearing of the recession receding and it's fair to say there will be modest growth in the UK." He added that many companies were delaying big e-commerce projects until next year, when year 2000 systems have been tested.

Last year Harvey Nash saw its operating profit jump 69 per cent in the year to 31 January.

The company is seeking to expand in Europe in an effort to hedge against the danger of slackening demand at home. In June the group bought a Belgian IT contracts group, European Experts, for pounds 6.5m. Over 23 per cent of its turnover comes from the Continent.

Harvey Nash may lack the diversity of some of its rivals such as Parity, which has already entered IT consultancy. But on a forward multiple of 13 the shares are on an average rating for the sector and look decent value.