Misys
It was almost five years ago that Sir Dominic Cadbury, acting chief executive of Misys, warned investors that the software company’s products were not up to scratch. The revelation marked the start of a gruelling few years spent realigning a company that had never really lived up to its promise, but signs have emerged that the business has finally turned the corner.
Misys circa 2006 was in disarray after its long-serving management team left under a cloud when their buyout turned sour. The unwieldy structure of the company — serving both the US healthcare and the financial sectors — was a huge bugbear for critics that wanted the business carved up and sold off.
Yet the new management team realised that the real issues lay in the product set; having a foot in healthcare actually helped Misys to weather the turbulence of 2008 when few banks had the money to invest in expensive new software platforms. Mike Lawrie, the IBM veteran charged with beating the business into shape, focused on boosting the healthcare business while its developers knuckled down and created new products.
The hard work put in during the tough times has started to pay off and impressive third-quarter results could see the company regain its growth-stock status. Sales of new products, most notably its BankFusion platform, have accounted for nearly 60 per cent of new licence revenue, ending insinuations that the turnaround has been of the “lipstick on a pig” variety, as one analyst put it.
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The success of BankFusion is crucial to the company’s prospects given that the world’s top 50 banks all use software developed by Misys.
The US healthcare division was cut loose last year, which helped quell criticisms of structure, and Misys subsequently pounced on Sophis — its biggest acquisition since the 1990s at $600 million — to strengthen its core business. Returning £670 million to shareholders also proved a landmark in Misys’s recovery.
Misys trades at 21 times forecast earnings, according to Investec, which falls to 15 times its projected profit for 2012 due to the integration of Sophis. That is hardly a demanding rating if the company fulfils its growth potential and discounts the prospect, seen as highly likely in some quarters, that the slimmed-down business will catch the eye of a deep-pocketed international rival now that its new products make the grade. The buy case for Misys has rarely been stronger.
Chime
If 2009 proved to be the “Year of the Meerkat” for Lord Bell’s Chime Communications then 2011 could be the “Year of the Football”. The public relations and advertising company has spent £11 million to buy sports marketing business Icon, which counts Fifa, Uefa, Wimbledon and the Ryder Cup as key clients. Chime already has a unit called Icon, which is part of the VCCP subsidiary that dreamt up the insurance-peddling meerkat, but the new deal will beef up its own sports marketing business.
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Chime described Icon as a “experiential” business but it admits that’s a mere buzz word. Icon designs and builds the hoardings that footballers and rugby players crash into on the sidelines while Chime sells the advertising that appears on the boards, so the logic looks sound.
The company has issued nearly two million new shares to pay for Icon as well as minority stakes in the Middle Eastern arm of its Bell Pottinger unit and a market research unit called Facts International.
The company’s fundraising may also lead to another deal: a Brazilian sports marketing business. This acquisition would add exposure to major sporting events in the country if completed; the Fifa World Cup and Olympic Games are scheduled to take place in the home of the samba over the next decade.
The company has also hinted that there are deals in the pipeline for healthcare agencies as it looks to bolster its fledgling business in the sector.
Chime has a strong track record when it comes to identifying and integrating small acquisitions and the company’s valuation of less than 11 times the 2012 profit forecast by Charles Stanley looks undemanding. Yet the stock has had a strong run since the middle of 2010 and investors may pause for breath until they can determine whether the slew of new deals will chime with its growth story.
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Robert Walters
Robert Walters has eased concerns over the impact of the Japanese earthquake after reopening its offices in the country. The staffing group was the most exposed of Britain’s global white- collar recruiters to the disaster. Its offices in Toyko and Osaka generated gross profits of £23 million last year, or 15 per cent of its fees, according to analysts. Shares slid as much as 14 per cent in the aftermath of the disaster.
However, first-quarter results showed little sign of strain. Fees across Robert Walters’ Asian division grew by 29 per cent to £19.3 million during the quarter, fuelled by continued demand for white-collar staff in China, only just shy of the 32 per cent reported across Europe. The company expected to take three months for Japan to return to normality.
The relief capped a strong set of results with overall new fees rising 23 per cent. Even the UK, which has been slower to regain its appetite for professional staff than other territories, rose 10 per cent. The group added another 100 staff during the period and plans to open new offices in China, Taiwan and Germany.
The strong balance sheet and well-regarded management have long justified the bull case and investors welcomed the Japanese reassurance. The stock trades at 16 times Numis profit forecasts compared with a 20 times sector average so there could be more upside to come.
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St James’s Palace
Panmure Gordon turned to Wikipedia for inspiration for its note on St James’s Place. The site lists The Waiting Game as a song by Squeeze, a game show hosted by Ruby Wax and an American film. It’s also the best way to describe the plight of shareholders waiting for Lloyds to sell its 60 per cent stake in the wealth manager. The broker thinks a quick placement in the coming weeks is a strong possibility. That could trigger a revaluation, but wait for now.