Friday, 31 July 2009

Phoenix flutters

(By Anthony Miller – Friday 31st July 2009 8:45am). The market’s love affair with infrastructure support services group, Phoenix, dampened a bit this morning as the company reported a 5% like-for-like revenue decline in the quarter (see here). Phoenix had been on a pretty good roll of late (see Phoenix rises) and was indeed the best performer in the FTSE SCS Index last quarter (see our latest IndustryViews Quoted Sector report).

CEO Nick Robinson reiterated the comments he made in the FY results in June, that “there are fewer large scale multi-million pound, multi-year contract opportunities in the Partner business' market. Opportunities and contracts in this business currently tend to be for projects of a smaller size.” This has long been our worry (see Phoenix sees growth slow), especially as Partner Services contributes just over 40% of Phoenix’s revenues and profit contribution. However, Phoenix’s Mid-market division (38% of revenues) was hardest hit, especially in product sales and professional services. Nonetheless, Robinson reported margin improvement in Partner Services and Business Continuity, partly though cost control and partly through a more profitable service mix, which is holding the group margin steady. Although the order book is down 6% since the end of March, the pipeline is looking healthier but deals are taking longer to close. Annualised contract values are down 2% since March, which shows the positive mitigation from recurring revenue streams.

Robinson is calling an ‘in line’ year, but it seems a little early for that degree of confidence given they still have 8 months to go. But let’s hope so anyway.

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