An eye-opener from Applied

The Investment Column

Crack open the champagne, sing hallelujah - Applied Holographics has made a profit for the first time in its 12-year, stock market history. So much for City short-termism, the company's loyal band of shareholders deserve a medal for their patience and perseverance, especially those who stumped up for last year's pounds 2.3m rights issue.

Before the celebrations get out of hand, it should be recalled that there have been many false dawns. Holographic products have been developed before, only to be overtaken by technology or unable to find a market.

But recently Applied has got to grips with its cost base, steadily reducing operating expenses relative to sales, while shifting the focus of its business away from job-lot packaging and promotional work to higher-margin security holograms.

True, the swing from a pounds 670,000 loss to a pounds 180,000 profit in the year to March owed a lot to CFC AH, a US joint venture which enjoyed significant sales from the launch of Microsoft's Windows '95 software package.

There are high hopes for a joint venture with compact-disc maker Nimbus. The pair have developed three machines to put holograms on music CDs and computer CD-Roms and trial orders have been placed with Microsoft and Warner, the US entertainment giant.

Given all its tribulations, Applied has been a perennial takeover candidate. The latest rumour centred on security printer De La Rue, but Applied's chief executive David Tidmarsh says no approach was received.

Tax losses carried forward could be pounds 15m, helping house broker Credit Lyonnais look for profits of pounds 750,000 this year rising to pounds 1m in 1997, implying a p/e ratio of 44 falling to 33. The shares at 126p, more than twice last year's low, suggest a great deal of the forecast recovery is already in the price. A 0.5p dividend could be paid out next year but this is still highly speculative.