Ness Technologies Far From a Turnaround

Ness Technologies (NSTC - Snapshot Report) is a global provider of IT services. The company recently announced a multi-million dollar contract win from Latin American government. Under this contract, Ness will provide Control command and Control system to the Latin American Government.

Although this contract is expected to positively influence the revenue stream of the company going forward, but there is no clear indication about the commencement of cash flow from it. We do not expect this contract win to provide immediate support to the company's downward moving revenue flow.

This apart, Ness faces intense competition from many established firms such as Accenture (ACN - Snapshot Report), IBM (IBM - Snapshot Report), Hewlett Packard (HPQ - Snapshot Report), Wipro (WIT - Snapshot Report), Cognizant Technology (CTSH - Snapshot Report), Computer Sciences Corp. (CSC - Snapshot Report), HCL, Electronic Data Systems, GlobalLogic, Virtusa (VRTU - Snapshot Report), Persistent and Symphony Services, which is making it tough for the company to gain additional market share. The company's high level of exposure to its politically unstable domestic market in Israel is also a cause of concern to us. Research firm IDC, in its recent report forecasts worldwide IT spending to grow at a slower rate of just 0.5% in 2009.

The company continues with its trend of poor results in 1Q09, and once again lowered its FY 2009 guidance due to the global economic slowdown. We believe Ness is facing slow growth and the risk of execution for the company remains intact.

Moreover, choppy equity markets and an uncertain global economy have led to a significant fall in its stock price. We expect the company to post unhealthy results in most of the quarters for 2009. We are a tad apprehensive about the company, and reiterate our Sell rating on the stock.

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