LONDON (ShareCast) - Credit Suisse initiated coverage of five information technology companies this morning, saying that its focus is on cash flow which is an issue across the sector.

"IT services is a cyclical industry and sustained macroeconomic volatility has taken its toll on investor enthusiasm for the sub-sector. Furthermore, the sector still has to deal with the ongoing structural risks from Indian pure-play price competition. We think it is hard to see an end to these uncertainties," said Credit Suisse in a research report.

The broker said that the 'acid test' of business quality is cash flow. "Weak cash flow is an issue across the sector and the only company among our coverage that has managed to report consistent cash backed earnings is Computacenter.

"We think these issues will start to come under increasing scrutiny that will undermine the prospects for a re-rating. Indra has the weakest track record of cash generation in the sector. We think there are indications of stabilisation, but cash flows are likely to remain weak for the next few quarters and limit the scope for a material re-rating in the short term."

Credit Suisse initiated coverage of: Computacenter with an 'outperform' rating and price target of 371p; Indra with a 'neutral' recommendation and a price target of €6.80; Capgemini with an 'underperform' rating and price target of €26.30; Atos with an 'outperform' rating and price target of €51.60; and Tieto with a 'neutral' rating and price target of €13.60.

SB

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