IT shares slump after warning by Logica

Shares across the premium-rated information technology sector slumped yesterday after Logica warned that difficulty in recruiting computer specialists, plus the strong pound, would mean profits a "little below market expectations".

Logica shares, which had soared 70 per cent over the last year to a recent pounds 11 high, plunged 95.5p to 755p. Among other IT stocks, Sema fell 92p to 1166p, CMG lost 37.5p to 1225.5p, Misys dropped 32.5p to 1385p and Parity slipped 6.5p to 547.5p.

Martin Read, Logica's chairman, said the group had been a "bit behind" in recruiting computer specialists in the UK: "It is not as easy to get staff as it was. Some of our personnel people misjudged the difficulty. We have this wonderful order book, we're just not turning it into revenue."

Mr Read said that reinforced recruitment efforts had improved headcount growth. He said the strength of the pound had severely affected its European business, around a quarter of the total. "This year we have been making a particularly big push into Continental Europe. Strategically that has been exactly right."

However, he said the share price fall was overdone. House broker Hoare Govett trimmed 5 per cent off its full-year profit forecast to pounds 28m.

Richard Holway, author of the Holway Report, the bible of the IT industry, said that the millennium issue and the European single currency were driving IT staff shortages. "Almost everyone in the industry believes it will get worse. Everyone is investing in IT. There are tens of thousands of unfilled vacancies."

Mr Holway said that this demand was also driving huge rises in salaries - around 20 per cent.

The booming IT market had also resulted in a fad for IT stocks. Shares in the IT services industry - which includes Logica, Sema and FI - have risen a staggering 47 per cent over the last year. "The average price/ earnings ratio in this industry is almost 30 times. A correction is overdue," said Mr Holway.

However, opportunities in IT for the survivors remained tremendous, he said. "We are talking about the problems of success. This is not the kind of story that anyone has written before - industry fails because there is too much work to do."

Others in the sector allayed fears about staff shortages. William Bitin, finance director at Sema, said: "I would be a liar if I said we have no problems finding good people. But it has not affected our business."

Paul Davies, chief executive of Parity, said the group was being protected by its IT recruitment agency: "Yes we are sensing a shortage, but it is not a problem for us because we have 2,000 freelancers on our database to draw on."