Megabuyte

Megabuyte relaunch w/c 7th April

After six months as a free service, today marks the end of the beginning for Megabuyte. We will be off air now for a week as we prepare to relaunch the e-mail service w/c 7th April along side the Megabuyte Journal, a hard copy monthly review of the sector. We will be posting pricing of the new service and details of how to subscribe shortly.

All existing Megabuyte e-mail subscribers will be put on a free trial of the new e-mail services but, if you subscribe in a reader, you will need to send us your e-mail address to be added to the trial list. Also, if you haven't yet registered for a free trial of the Megabuyte Journal, please send us you contact details including postal address to info@is-research.co.uk.

Megabuyte morning round-up 28.03.08

The markets were perky again yesterday as the FTSE gained 1% to 5,718 and the Megabuyte Leaders Index ended up 0.2% to 845.9. However, weaker than expected revenues and negative comments on current trading from Oracle overnight are likely to weigh on sentiment this morning. The NASDAQ ended the day nearly 2% lower at 2,281.

Civica follows Northgate in bid to go private with 3i

The management team of Civica, which supplies software and services to the local authority and housing market has launch a 270p per share all share cash bid for the company backed by 3i. The bid represents a 34% premium to last night's closing price and values the company at £190m. The bidco has irrevocable undertakings 41.5% of Civica shareholders.

First thoughts: Stock market interest in Public Sector IT companies seems to be inversely proportional to that of private equity. Valuations for the PSIT sub-sector are amongst the lowest in the SCS sector and yet most of the suppliers offer stability and strong cash flow - attractive attributes for private equity. The parallels with Northgate are interesting. As well as being competitors in the PSIT space, both companies announced initial private equity interest a year before the eventual bid. In June last year, Civica revealed that it was talking to a private equity firm (widely rumoured to be Alchemy, the investor that took the company private) but the deal came to nothing as the debt markets tightened. Since then, Civica's share price has slipped from 275p to 200p which has clearly made private equity deal more attractive, even with the required premium.

The 270p take-out price values Civica on 12.7x current year earnings which is almost bang in line with the Megabuyte 50 Index of which it is a constituent. Given the state of the markets and Civica's fall from investor favour, this looks like a good deal for shareholders. On a wider note, with Northgate and Civica in the hands of deep pocketed private equity players, it will be interesting to see what happens to the three other listed PSIT players. On that point, it is also interesting to note that the statement specifically says that 3i will provide further capital for growth. Anite's public sector business is currently for sale and, we understand, is also doing the rounds of the private equity community. It's not beyond the bounds of reason that 3i might look to acquire one of the other large players. They have proved their appetite to do this kind of large scale roll up with Telecity, with has made them a great deal of money. In addition to Anite, targets could include IBS OpenSystems which has stumbled recently and IDOX, which is the only one of the quoted players that seems to have any momentum at present. On thing seems certain, more change of ownership in PSIT looks like a certainty.

Megabuyte morning round-up 27.03.08

It was a quiet day in the markets yesterday as th FTSE 100 slipped 0.5% to 5,660 and the Megabuyte Leaders Index eased 0.6% to 844.5. In the US, it was also a weak session with the NASDAQ closing down 0.7% to 2,324. In a day where prices were broadly steady, Axon continues to reach new lows and slipped 5% yesterday to 375p. On the brighter side, Morse moved back through the 60p level with a 4% gain on the day to close at 61p.

Sopheon lands delayed contracts

Supplier of software to the pharmaceutical industry Sopheon has reported revenues for the year up 5% to £6.3m and profits of £0.1m against break even in 2006. Revenues in the US grew strongly whilst Europe was weaker. Sopheon reported in January that two significant contracts had slipped into the current year so these results were not quite as hoped. However, the two contracts in questions have now been signed and the company already has visibility over £4m of revenue for 2008. Sopheon signed 47 new customers or extensions during the year and, including customers from recently acquired Alignent Software, total customer numbers reached 135 by the year end. Despite the contract delays, Sopheon shares have performed broadly in line with the Megabuyte Fledgling Index so far this year and have opened unchanged at 13p this morning.

Xploite takeover talks off; trading in line

Acquisitive ICT services player Xploite has announced that long running takeover talks have been terminated. The announcement comes in the company's AGM statement which also notes that current trading is in line with expectations. Xploite shares went up sharply in December on news of the takeover talks but have slipped since and are 15% year to date. The shares have opened down 20% to 41p.

Megabuyte morning round-up 26.03.08

Another attempted market rally seems to have faded again yesterday as positive sessions in Asia and London were succeeded by a flat performance in the US following weak consumer confidence data. The FTSE 100 closed up 3.5% to 5,689 and the Megabuyte Leaders Index advanced 2.7% to end the day at 848.1. Across the pond, the NASDAQ closed 0.6% higher at 2,341. All of the constituents of the MB Leaders index registered a gain with Logica the best performer with a 6% jump to 100p on the back  of positive broker comment. RM ended the day off its lows to close 3% down at 200p whilst Netstore was a shade higher at 20p following its interim results. Elsewhere in the sector, there was a generally positive performance - of note were Computacenter (up 5% to 164p), Gresham Computing (up 9% to 48p) and SDL (up 7% to 310p).

There is no significant news out this morning.

Megabuyte morning round-up 25.03.08

Weekly Monitor

It was another very rough week for the market and the SCS sector last week as the Bear Stearns debacle took the credit crunch issue to a new level. The Megabuyte All Share registered a 4.9% decline on the week to 892.4 whilst our index of the top ten stocks in the sector by market cap, the Megabuyte Leaders Index, slipped 2.7% to 827.0. Micro Focus was the worst performer of the week with a 10% decline to 171p and is currently the second worst performing stock in the Leaders Index so far this year with a 33% fall. The worst performer out of the top ten is currently Telecity which has dropped nearly 35% since the start of the year and closed last week at 197p. Outside of the top ten, Fidessa was hit hard last week as worries over the investment banking sector came into focus - its shares closed down 18% to 690p. Computacenter also had a bad week registering a 17% decline to close at 155p on Thursday. Looking at the smaller stocks, the Megabuyte Fledgling Index was down 6% to 908.8. Within the MB Fledgling, nCipher was amongst the worst performers with a 17% decline on the week following results whilst Delcam slipped 14% to 274p following its results. You can download our weekly summary here

Axon share slip despite Wolverhampton win

One story of note that from Thursday was Axon's announcement of a 10 year strategic partnership with Wolverhampton City Council. The partnership will see Axon lead a wholesale change in the council's IT infrastructure over the coming years. There was no contract value mentioned in the statement but it does say that the council stands to save £60m over the life o f the contract so we would expect Axon's revenue from the deal to run into tens of millions over the 10 year term.

First thoughts: Whilst this is a significant contract for Axon, such has been its success in the UK, it really needs to be signing these kind of contracts just to tread water. For us, one of the most interesting points is that the shares actually dipped 2% on the news underlining how radically the market's view of the company has changed over the last six months.

RM re-iterates increased H2 weighting

Turning to this morning, educational software and systems supplier RM has issued a period end trading update. The statement notes that, whilst trading is in line with management expectations, as reported in its IMS in February, the company's H2 weighting will even more marked this year. RM highlights a number of factors behind this increased seasonality. Bidding costs for BSF (Building Schools for the Future) will be £4.5m this year of which around £3.0m will be in H1 compared to £1.6m in H1 2007. Order intake from learning platforms is ahead of expectations but these orders are taking longer to convert to revenues and, lastly, the educational resources business will be more H2 weighted than normal although no reason is given for this.

First thoughts: Whilst the BSF programme is going well for RM and it has affirmed guidance for the full year, it seems like the company has a lot to do to achieve its full year targets. Prior to today's announcement, RM shares had performed broadly in line with the Megabuyte 50 so far this year and trade on around a 18% premium to its peers. However, the shares have slipped 6% in early trade this morning to 194p.

Netstore reveals the extent of restatements; takeover talks ongoing

In its interim results to June, application outsourcing specialist Netstore has said that profits were overstated by a total of £2.3m in the years running up to June 2007 of which £1.6m related to fiscal 2007. The overstatements resulted from incorrect cost accruals combined with some early revenue recognition. Results for the first half show revenues down a shade to £19.7m and adjusted PBT down from £1.3m to £1.0m. Whilst business in the core application outsourcing and security business seems to have been solid, if unexciting, the professional services arm had a poor trading period. The company was broadly cash flow neutral for the period but, having raised £7m for development of a new datacentre in H1, net cash at the period end was 3.4m. The company also reports that talks with a number of third parties which may lead to a bid for the company are ongoing.

First thoughts: The restatements, whilst an irritation, are not as bad as they might have been and should now be behind the company. However, Phoenix IT shareholders may be interested to note that the man who presided over Netstore's accounting issues as FD and then CEO, Neil Lloyd, is now a divisional Managing Director at Phoenix IT Group. As for the takeover talks, we continue to believe that, whilst Netstore may well be better off as part of a larger group, any bid should be at a significant premium to the current price to reflect the underlying value of the company and the scale of the cost synergies available to an acquirer.

Megabuyte morning round-up 20.03.08

After the ups and downs earlier in the week, Wednesday was a quieter day. The FTSE 100 closed down 1.1% to 5,546 as bank shares continued to slip and the Megabuyte Leaders Index was 0.7% lower at 838.3. Having pushed the index up on Tuesday, Misys was the biggest faller yesterday and the market digested the Allscripts deal. Interestingly, Allscripts shares also ended the day pretty much back where they had been at the close on Monday. Computacenter had a rough day and shed 9% to close at 161p and, at the smaller end of the market, Delcam also slipped 9% to 275p as it sounded a note of caution in its prelims.

Tietoenator bid should give hope to Logica shareholders

Nordic private equity group Nordic Capital has made a cash offer for IT services player Tietoenator at €15.5 per share valuing the company at €1.1bn - a 38% premium to Wednesday's closing price.

First thoughts: This bid should give hope to Logica shareholders. There are significant parallels between Tietoenator and Logica. Whilst Logica is larger, the two companies are of comparable size and have both performed poorly of the last year. Tietoenator's shares have halved over the last 12 months as have Logica's and both companies are in the process of looking at their strategy and operations. We look forward to hearing from CEO Andy Green in May about his plans for Logica. Many commentators, including us, feel that the best ultimate solution for Logica is for it to be acquired although some had wondered from where the bid might come. At least we now know that there is still interest amongst the private equity community for strategically challenged IT Services companies.

Artilium boosted by KPN deal

Telecoms software provider Artilium has issued interim results showing revenues down from £1.7m to £0.9m and a loss before tax of £3.5m, up from £1.5m. The company experienced a cash outflow in the period of £2.2m before £3.0m was received from a share issue. Interestingly, the proceeds of the share issue should have been £4m but the company is still owed £1m by Robert Bonnier's investment vehicle Cold Investments. The outlook statement says that the company expects to hit estimates for the year but that results will be H2 weighted. The weak results were more than compensated for by the simultaneous announcement of a €15m three year contract with KPN Mobile for its service creation and delivery platform and the shares have opened up nearly 20% to 33p.

First Thoughts: Artilium shares have collapsed by 90% in the last 12 months. The question for us is not why they have collapsed but how such a small company ever got to have a market cap of £200m in the first place. Artilium looks to have some interesting technology and the deal with KPN looks potentially transformational. However, we've seen many telecoms software providers over the years with good technology that have stumbled at its first big implementation so we will watch with interest how Artilium gets on with KPN.

Portrait to acquire Million Handshakes

Supplier of CRM software to the financial services sector Portrait Software is to acquire the colourfully named Million Handshakes for up to £2.8m in Portrait shares. Oslo based Million Handshakes is privately owned and supplies campaign management software. For the year to December, the company generated a profit of £0.2m on revenues of £1.8m.

First Thoughts: Whilst it is good to see Portrait building the business in an attempt to get out of the micro cap cul-de-sac, this looks like a risky deal. Whilst the technology may be a good fit for Portrait, the company is already managing operations in the US and adding another 21 people in Oslo will only add to management stretch for this small company.