Bottom Line: Reasonable price

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The Independent Online
THE BAD news about MDIS is its financial record for the past three years. Turnover fell 14 per cent between 1991 and 1993 and pre-tax profits slipped from pounds 28.3m to pounds 12.9m. On the face of it, it is hard to see why investors should be interested - especially as the managers' stake will halve to 7.6 per cent after the flotation.

The company's explanation for the decline in turnover is falling computer hardware prices, which were passed on to customers, and the stalling of the important local government market ahead of administrative changes.

Pre-tax profits were hit by a big increase in interest payments related to the structure of the buyout debt. As the pounds 107m net of expenses being raised will be used to pay off that debt, the pro forma comparisons look much healthier. Operating profits have risen each year.

MDIS has other advantages for a software and systems company. More than half 1993's pounds 148.5m turnover came from recurring revenues, an unusually high proportion. Its niche markets cover a wide range and in the public sector it has a dominant position.

It also has conservative accounting policies, in happy contrast to some computer firms. For example, it does not capitalise any research and development spending and treats leases extremely cautiously. The offer price puts MDIS on 18.2 times the pro forma 1993 earnings, reasonable for the sector.