Questor share tip: Buy Logica it could reap benefits of EU outsourcing

Published: 7:00AM GMT twenty-five February 2010

Logica

Logica

116.9p -5.6p

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Questor says BUY

Andy Green, the IT services group"s arch executive, contingency be gunning for a Labour victory. A Conservative government, or worse a hung parliament, is expected to lead to a inform in open zone spending, that right away accounts for 63pc of Logica"s UK revenue.

As he voiced the Anglo-Dutch group"s full-year formula yesterday, Mr Green repelled a little analysts by notice that sales will drop in the first-half of 2010 and are doubtful to enlarge over the full-year due to marked down open spending opposite Europe.

"We do not see the mercantile meridian strengthening, and until we do we have to be cautious," he said. "Whatever happens in [the election] open zone spending will be slower this year. It is expected that a hung council will put behind decision-making and lengthen the interregnum in spending."

Despite Mr Green"s assurances that the association had taken accounted of the goods of the choosing in the 2010 forecasts, the notice knocked roughly 5pc off Logica"s shares.

If the subsequent supervision does cut open spending, Logica will be blissful the bearing is not as great as rivals IBM, Accenture and HP, that are expected to humour the brunt of any reductions.

George O"Conor, researcher at Panmure Gordon, pronounced 2010 will be a "an uppy and well-spoken year", but believes Logica"s open zone strength and experience puts it in great stead to reap the benefits when European governments fasten on to the benefits of outsourcing. "Logica is head and shoulders on top of the European rivals. European governments will find out Logica," he said.

Full-year pre-tax distinction came in at �42.6m compared to �43.8m in 2008. Sales dipped by a less-than-expected 3pc to �3.7bn,

Logica"s IT consulting sales fell 10pc, with the monetary services zone dropping 20pc as smashed banks cut behind on complement upgrades. The company"s Benelux sales forsaken 19pc, as the region"s finance-focused IT companies are additionally disorder from the fall-out of the monetary crisis.

Management gratified investors by augmenting the division on credit May 6 by 10pc to 3.3p. "As the economy recovers, we would design well-spoken on-going increases in the division towards a higher payout ratio," the association added. "This would concede shareholders to good without delay from the expansion ensuing from the new investment in the business, whilst stability to produce enough supports to deposit in destiny growth."

The stock, that is trade on 10 times 2010 foresee gain a 30pc bonus to the peers looks cheap. The division produce for 2009 is 2.9pc and foresee to be 2.6pc for 2010.

Although the shares have dipped given Questor last sloping the batch at 121.7p in November, we are still assured Logica is well positioned for estimable expansion over the long-term. Buy.