2nd UPDATE: Capgemini Shares Surge Despite Weak Guidance

Shares in French IT-services group Capgemini SA (CAP.FR) surged Thursday as investors were encouraged buy the company's strong cash generation and a confirmation that the second half of 2010 should see a return to growth.

At 1357 GMT, Capgemini shares were trading up 6.2% to EUR33.64, the highest gainer in a flat Paris market, driven mainly by the EUR1.27 billion net cash the group posted for the full year and despite disappointing overall guidance for 2010.

"The cash generation is without doubt the most positive point of this publication," Oddo Securities said in a research note, adding that the market had expected cautious guidance.

Paris-based Capgemini, Europe's largest computer services company, Thursday said it is well positioned to take advantage of a return to growth in the second half of the year in a market already showing signs of stabilization, as clients' appetite for bigger projects returns.

Still, tough comparisons will result in a drop in revenue in the first half, the company said.

For the full year 2010, Capgemini expects revenue to drop between 2% and 4% on a like-for-like basis, which strips out acquisitions, disposals, and currency movements.

Capgemini in November revised down its full-year and second half revenue guidance, hit by a sharp drop in demand for IT services as companies scaled back on new projects. All its businesses, except for outsourcing, declined amid the economic downturn.

"Our sector finished by being hit by the economic downturn in the second half of 2009 but Capgemini nevertheless managed to post satisfying results...we are ready to bounce back," Chief Executive Officer Paul Hermelin said in a conference call with reporters.

Capgemini has put in place plans to optimize its production and profitability and is interested in acquisitions in the U.S. and emerging markets, Hermelin said.

"2010 will be a year of acquisitions," the CEO said at a press conference in Paris. He said the company is not yet in any discussions on possible buys and that most targets are likely to be small. However he didn't exclude the possibility of bigger deals.

Capgemini, which competes with U.K.-based Logica PLC (LOG.LN) and France's Atos Origin (ATO.FR), also said it expects its earnings before interest and tax, or EBIT, margin to be between 6% and 6.5% this year before it rises to 8% in 2011. The group aims to achieve a double-digit margin in a few years, Hermelin said, "but that will depend on the economy."

Net profit in the six months ended Dec. 31 was EUR100 million, down from the EUR220 million reported in the same period last year, as revenue fell to EUR4 billion, from EUR4.34 billion. Net profit was also hit by high restructuring costs, which totaled EUR215 million in 2009. Earnings and revenues met analysts' expectations.

For this year, the group forecast restructuring costs to be significantly lower, in the range of EUR70 million to EUR100 million, Chief Financial Officer Nicolas Dufourcq said.

EBIT in the second half of last year also fell to EUR308 million from EUR412 million a year ago. This gave the company an EBIT margin of 7.7% in the second half.

For the full year, like-for-like sales fell 5.5%, while the EBIT margin was 7.1%, both in line with the company's guidance.

Capgemini said it plans to pay a dividend of EUR0.8 a share for 2009, down from EUR1 a share a year earlier.

-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54; ruth.bender@dowjones.com

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