Bottom Line: Full bid would take Sherwood out of the woods

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The Independent Online
SHARES in Sherwood Computer Services, listed on the USM, closed up 17p at 94p yesterday after announcing worse than expected losses last year. Buyers must see Sherwood as a recovery stock.

This positive reaction is a real stroke of luck for a company that passed its final dividend, issued two profit warnings last autumn, and lost its finance director in November, followed by its executive chairman yesterday.

Sherwood tumbled from a pre- tax profit of pounds 3m in 1992 to losses of pounds 2m. Exceptional items, including property lease provisions, software write-downs and redundancy costs, came to pounds 1.9m.

This year will see another pounds 500,000 in redundancy and restructuring payments, a big chunk of it going to Richard Guy, the departing chairman.

Operating losses in 1993 were pounds 200,000 before exceptionals, compared with 1992 profits of pounds 2.2m. Sherwood blamed continuing difficulties in the Lloyd's insurance market, which accounted for 38 per cent of turnover, and in the housing market.

It has, in effect, pulled out of the latter sector by appointing a distributor for the housing software products.

The company said sales to Lloyd's would fall to a third of the total this year.

Sherwood plans to concentrate more on software and systems for insurance and reinsurance companies and on City Deal, its new execution-only stockbroking system.

George Matthews, chief executive, said the service, launched in September, had 20,000 customers and had been making a profit since the turn of the year.

City Deal won an important contract when National and Provincial Building Society appointed Sherwood to run its share-dealing service.

Prospects for growth in these alternative - although competitive - areas of financial software have led one broker to forecast pre-tax profits of pounds 1m this year, which would put Sherwood on a forward price/earnings ratio of 5.

However, three other brokers have given up following the company, with the shares still at a fraction of their 12-month high of 315p and less than half their 1985 flotation price.

Industry sources suggest that bits of Sherwood could be up for sale. A full bid is also considered a possibility, but Mr Matthews is so far ruling this out as most unlikely. In that case, rule out Sherwood Computer shares, too.