True or false: the index of share performance of computer service companies on the London Stock Exchange ended 1991 four times higher than the FTSE 100 index itself. Again, true or false: companies that buy other service companies stand a far higher chance of going bust. And at least one of the few remaining UK systems houses will end ’92 in the hands of foreign owners. The answers are respectively true, true and highly probable, according to industry analyst Richard Holway, former group marketing director of Hoskyns Group Plc and now editor of financial newsletter Systems House. Last year was the first time the UK computing services sector experienced recession, with the average of results released so far showing turnover down 2% but profits reduced by 16%. Despite this, the FTSE 100 index finished ’91 12% up while the 43 service companies’ average rose 46%. This shows investors still see the IT industry and software and services in particular as a good bet in the medium term, boosted by bid activity, US buying activity and expectations of a UK economic improvement in the second half of this year. A lot of investors out there are more intelligent than the average bear, as Holway puts it. Holway takes a tough line on companies using the recession as an excuse for poor performance, pointing out that excellent results by some players – in markets which resound to the wails of bruised competitors – suggest that the recession exposes weaknesses, it’s not a cause. Nonetheless, a record seven companies were delisted in 1991, including SD-Scicon, Logitek, Quotient and Butler Cox – all fell to predators – and Ferrari, which called in the receivers in March. The Ferrari case illustrates what Holway calls acquisition indigestion, the syndrome of takeovers ending up killing off the new owners: at one time it seemed to be buying a company every other month, he says. One winner in 1991 was a company which has avoided growth by acquisition, Pick and Unix specialist Electronic Data Processing Plc of Milton Keynes, which reported profits for the year ending September up 94% to UKP4.1m, earnings per share up 89%, and whose share price ended 1991 at 285p and which has now climbed to 338p. Misys Plc, which reported pre tax profits up 136% at UKP3.6m for the half year on Wednesday (CI 1, 834), is one acqusitive company which seems to have recovered from its problems and is now clearly on the road to recovery, according to Holway. Holway expects at least another two to three companies will be delisted in ’92, mostly due to acquisition activity: headline names among these may well be one or more of the remaining UK systems houses, either Logica Plc or Data Sciences Plc, he predicts, most probably to US or European bidders.
