Fear of flying into next century boosts techno stocks

MARKET REPORT

The joke going round City dealing floors yesterday was don't be on an aeroplane as midnight approaches on New Year's Eve 1999.

The reason for the gallows humour is the "millennium bomb" - the inability of computers to distinguish between the 20th and 21st centuries - that is ticking away in computer systems up and down the land.

Latest reports suggest that the extent of the problem has been greatly underestimated.

Apparently programmers, worried by the high price of computer memory in the 1960s and 1970s, stored year dates in microchips as two digits rather than four to save money. As a result the software will be unable to distinguish between 1900 and 2000.

The microchips, or embedded processors, are used in traffic lights, chemical plants, power stations, offshore oil installations while oil tankers, war-planes and cars all depend critically on multiple embedded processors.

Not surprisingly, few companies have taken corrective action so far - it could take up to four years in some cases - so Ian Taylor, the UK Technology Minister, is raising the issue again at a meeting of European Union telecom ministers today.

In the meantime, traders don't want to be caught short of certain technology stocks. Several hit record highs yesterday, including Logica, 32.5p higher at 1015p, Misys up 5p to 1250p and P&P, 2.5p better at 228.5p. Micro Focus, another software group providing solutions for the millennium date change, soared 87.5p to 1152.5p after returning to the black in the first quarter.

Peek, which makes traffic light systems, raced ahead 3.5p to 86p as buyers emerged ahead of Tuesday's finals. The shares have slipped back from over 120p since September's interims, but dealers say the fall is overdone as the second half order book was up 60 per cent.

Sage was another software group to hit a record high, up 3.5p to 644p, on further consideration of last week's pounds 40.1m cash acquisition of KHK, the leading accountancy software group in Germany for small and medium- sized companies.

According to Geordie broker Wise Speke, the deal further strengthens Sage's market position in Europe with leadership in the UK, France and now Germany. KHK was bought at an attractive price of 1.3 times sales and an exit multiple of 8.9 times estimated earnings for 1996, helped by the relative weakness of the German mark.

With earnings forecast to grow by over 25 per cent in 1998, the shares stand on a prospective p/e ratio of 22 and Wise Speke expects relative outperformance of at least 10 per cent over the next 12 months.

It wasn't just the software sector that entered uncharted territory. The FTSE 100 closed an all-time high for the second day running, up 2.4 at 4360.1 after touching 4367. Fears about higher US interest rates were eased after Federal Reserve chairman Alan Greenspan said shares were not overvalued as long as corporate earnings matched expectations.

The tone of his comments was rather at odds with remarks he made in December about the market's "irrational exuberance", repeated last week when he said Wall Street's two-year rally may have pushed prices to unsustainable levels.

Cadbury Schweppes, the soft drinks and confectionery giant, had a yo- yo session. Its shares initially dipped 7p but recovering to close 19p firmer at 529p after an upbeat post-results presentation sent analysts away happy with new chief executive John Sunderland's performance. A chunky 13.8 million shares were traded.

Glaxo Wellcome, reporting today, saw nervous selling. The shares retreated 21p to 1035p on concerns about possible side-effects of steroid asthma inhalers and a profits downgrading by broker Goldman Sachs.

BAT Industries was the weakest blue chip, falling 18.5p to 531p after saying it was willing to pay $100m a year as part of an industry-wide settlement of US tobacco litigation.

Bid talk again lifted Reed, up 39p to 1181.5p, with Reuters, the rumoured suitor, off 15.5p to 644p. Emap closed 12p better at 747p, as chief executive Robin Miller became the latest board member to buy shares since managing director David Arculus quit last week.

FKI, still reeling from its failed bid for doorknobs group Newman Tonks, rose 4.5p to 190p on heavy volume of 4.1m as UBS reiterated its buy advice.

Sunderland slumped 32.5p to 675p. The shares are heading back to their 585p flotation price after an embarrassing 4-0 home defeat at the hands of Tottenham heightened relegation fears.

Taking Stock

AIM-listed Geo Interactive Media advanced 4.5p to 99p. Testing for its Emblaze Creator has been successfully completed and is being adopted by Time Warner and Virgin. The product, which allows web page designers to embed video in their pages, is now ready for marketing and will be released at the Spring Internet World show in Los Angeles next week.

Shield Diagnostic's dazzling run continued. The shares have sky-rocketed from 130p six weeks ago to last night's close of 605p, up 44.5p. Shield's test to identify people at risk from heart disease received encouraging results in a trial of 2,500 patients at St Bart's in London. The outcome of a study covering 16,000 patients at the University of Houston in Texas is expected any day now.