August 6, 2010 10:31 pm

Logica pledges to reward shareholders

Logica, the IT services group, pledged to raise sharply its pay-outs to shareholders and reassured nervous investors that revenue from its UK public sector services business would not fall heavily in the face of spending cuts.

Shares in the group rose 7p to 116½p after it reported first-half results and said it would increase the proportion of earnings that it pays as dividends from 28 per cent last year to at least 40 per cent by 2012. It raised its first-half pay-out 90 per cent to 1.9p.

Andy Green, chief executive, said: “We’ve got great cash flows and if we’d continued as we were, we’d have been debt free by 2012. We wanted to reward shareholders.”

Revenues fell 1 per cent to £1.87bn ($2.98bn) as strength in its consulting business offset weakness in the UK, Belgian and Dutch subsidiaries.

“It shows how balanced the business is,” said Mr Green. “As one thing goes down, another goes up. It’s important in the way that we run the business.”

Pre-tax profit rose from £24.2m to £86m as a £44m exceptional charge taken in 2009 was not repeated. Earnings per share jumped from 1.3p to 4.3p

Investors were reassured that Logica retained its guidance of a modest improvement in revenue and profits in the second half. Markets had in particular been worried that the group could be badly hit by UK public sector spending cuts.

Revenues at the UK business fell 3 per cent to £367m but Logica said second-half revenues would be at a similar level following new contract wins with the Ministry of Defence and Ofcom.

FT Comment

Large dividend rises are usually warmly welcomed by shareholders but can cause disquiet among technology investors, who prefer to see cash spent on ensuring rapid growth. Logica is not quite the high-growth story that other tech companies such as Arm and Autonomy are – due largely to the presence of a lower-margin consulting business – but neither is it entirely devoid of growth prospects. Overall, Logica is expecting 2010 to be little different to 2009, with analysts forecasting that the company will generate profits of £160m from revenues of £3.6bn. Estimates for 2011 suggest improved margins compensating for another year of limited growth. On a prospective 2010 price/earnings ratio of about 9, the shares trade in line with rivals. The dividend will be attractive but better returns can be found elsewhere in the sector.

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