The Investment Column: Autonomy's growth story still one to back

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The Independent Online

In the modern world there is an amazing array of technology which helps us create, share and distribute information in electronic form. But there is surprisingly little that helps us sift through it effectively and find the parts we need.

This is where Autonomy comes in. After the £285m purchase of the US rival Verity in November, the group has become the world's biggest provider of software allowing companies and governments to search the mounds of information they receive on a daily basis.

As such, Autonomy has huge growth potential. Yesterday's annual results saw it register an awesome 135 per cent rise in pre-tax profits to a record $21.9m (£12.6m) on sales of $96m, up 48 per cent on the year. The group boasts impressive profit margins because the vast majority of its costs are fixed. Once these are covered by the revenues Autonomy gets for licensing its software to the likes of Shell, Vodafone and the US Department of Homeland Security, any extra sales pretty much go straight to the group's bottom line.

Autonomy's success has come from the fact that its software is more sophisticated than its rivals'. It does not just look for specific words but also understands their context, making it more accurate. As long as the information is in digital form, it can sift through written documents as well as video and audio.

Its application also spills into the consumer sector and parts of the world the likes of Google and Yahoo! are having trouble conquering because of alphabetic complexities. It has a joint venture with one of China's biggest broadband providers and similar deals are likely in the Middle East and India. Although Autonomy shares trade at 32 times forward earnings, this is not expensive given the growth potential of the market the company dominates and its operational gearing. Buy.