Logica shares plunge as growth forecasts are cut

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The IT services firm Logica yesterday spooked the market by downgrading the growth expectations of its key mobile phone text messaging business.

The stock fell 15 per cent, or 125p, to 705p, making it the worst-performing share in the FTSE 100 index yesterday. Shares in rival CMG shared the pain, registering a 7 per cent drop.

While Logica reaffirmed its previous overall financial guidance, it said it now expected sales growth in its mobile networks division to be more like 30 per cent for both the first half and the full year.

The division sells software to mobile phone operators, which enables them to provide text messaging services, as well as the technology that allows them to monitor pre-pay mobile phones. It was expected to account for about half of this year's forecast profits and almost a third of forecast sales.

Analysts were shocked by the new guidance, particularly since Logica had already announced a 37 per cent lift in sales in that division in the first quarter of the year.

Some, who had been expecting mobile networks to produce sales growth of 40-50 per cent for the current year, were also unconvinced yesterday that it would meet the new 30 per cent target.

"I was very unconvinced at the meeting [with Logica's management] yesterday and they weren't really able to explain how they got to the new 30 per cent figure," said one analyst who did not want to be named.

Logica blamed the shortfall on declining revenues from pre-pay mobile phone systems thanks to weaker customer demand. It said, however, it expected "improved prospects" in the second half of the year.

Mike Tyndall, an analyst at the Japanese bank Nomura, said: "This looks like the division is really faltering. They [Logica] have really been putting in solid performances, quarter over quarter, and this is the first time that mobile networks has disappointed."

That disappointment completely overshadowed news that Logica remained "confident" of delivering a "strong" financial performance for the year.

Andrew Given, finance director, said: "Both for the first half and for the year as a whole, we expect to deliver good revenue growth – albeit, as we have previously said, not at the rate of previous years – with improving margins.

One of its two house brokers, UBS Warburg, forecasts Logica to turn out a pre-tax profit of about £182m on sales just shy of £1.4bn for the current year.

Logica said UK sales growth had been weak but that margins had remained "strong", while the US markets continue to be "difficult".