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SEMA GROUP SHARES TAKE TUMBLE ON PROFIT WARNING, BUT CAP GEMINI WAITS IN WINGS

The news that Sema Group Plc was embarking on a reorganisation that would see 52 people losing their jobs (CI No 1,075) had to mean trouble, because trained people are so hard to get that software companies don’t lay people off unless they have no alternative. And on Monday, the boom fell when Sema accompanied news that profits for 1988 will be lower than expected with the news that joint managing director Mike Smith had resigned, leaving his opposite number in Paris, Pierre Bonelli, to become the sole managing director. While the Sema-Metra side of the business in France is doing fine, the CAP Group business in the UK will make only a marginal contribution to profits, having run into trouble on no fewer than four contracts, mainly public sector, that will require sizable provisions against possible losses. The Financial side has been hit by the slowdown in the City in the wake of Meltdown Monday, and the industrial division has suffered a slowdown in orders. Only the retail systems business is looking bright, with orders at a record level. CAP on its own turned in pre-tax profits of UKP8.3m last year, and analysts have scaled down their forecasts for the combined company for 1988 sharply, to around UKP13.5m from UKP20.5m before the announcement. But even that may be too optimistic: competitors are muttering that bidding on big contracts has become much too keen, and that CAP, while not the only one to pare margins to the bone in an effort to expand its business, was certainly prominent. The problem with fierce price competition in the software business is that the risk that something will go wrong as a contract progresses is unusually high, and to make money on very competitive tenders requires that absolutely everything goes to plan. CAP Gemini Sogeti is sitting on 19.3% of Sema Group’s equity, and the fact that the Sema share price fell 34 pence to 291p will alert the French giant to the opportunity to pick up more shares at what could look like bargain basement prices in the longer term: that expectation may well put a floor under the Sema share price.

Meantime, furthering its ambitions to bestride Europe like a software colossus, Cap Gemini Sogeti SA has been buying again in Finland: it has picked up the Hiekkamaki Oy software consultancy, adding another 21 people to the 34 already employed by its Cap Gemini Suomi Oy Finnish subsidiary. No terms.

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CBR Staff Writer

CBR Online legacy content.