Experts calm EDS shares fear

Worried EDS customers have been reassured over the sharp fall in EDS' share price by IT industry experts.

Worried EDS customers have been reassured over the sharp fall in EDS' share price by IT industry experts.

Last week the outsourcing company saw its share price fall by almost a third, after it had already halved in the previous week. Investors were acting on the advice of market analysts.

Analysts had pointed out that EDS' cash flow was threatened by the settlement of a £140m debt for a previous investment. The research note from Merrill Lynch warned, "Reduced financial flexibility may impact the company's ability to effectively compete for contracts."

With huge contracts such as the Inland Revenue on the table, such comments caused an understandable stir.

Robert Morgan, chief executive at outsourcing specialist Morgan Chambers, acknowledged that the dramatic drop in share price and associated news will concern IT decision-makers, but said such worries are unfounded.

He said the lack of investor confidence in EDS showed a misunderstanding of the company. The debt would not affect the company's operating position and EDS could easily borrow cash at good rates to finance costly bids and the set-up costs of contracts, he added.

"EDS is the king of forward book, with contracts stretching 10 or more years into the future. Is the UK Government going to be a bad debt?" Morgan said. "EDS runs significant parts of central government. In the US, customers include the Pentagon and Rolls Royce.

"To suggest that EDS would have problems raising funds for large-scale outsourcing agreements is fatuous, inane rubbish. What better risk is there than a 10-year contract to supply a FTSE company?"

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