Ideal provides that little extra

Ideal Hardware has just clocked up its tenth successive year of profits growth and seen its share price triple in three years - an impressive record for a company in the commodity world of distributing computer components.

While distributors like Abacus have suffered badly from a marked slowdown in computer sales, Ideal has protected itself, and blossomed, by specialising in high-margin memory storage systems - memory disks, tape streamers and the like - which represent over three quarters of its business.

As the price of each megabyte of computer memory has fallen, the size of the average unit needed to drive a modern computer system - with all its whizzy multimedia features - has grown from 20 megabytes 10 years ago to over 2,000 megabytes today. So the value of shipments has grown, while Ideal has also been aggressive in marketing its product lines to its customers, the specialist computer shops.

The group uses the Internet to update customers on the latest gizmos. Its biggest customers get a dedicated satellite channel beaming three hours of product information and video demonstrations over the Internet. By acting as a consultant, Ideal makes its customers more effective resellers and can charge that little extra to keep margin growth going.

Pre-tax profits for the year to end May grew 23 per cent to pounds 9.6m on sales up a quarter at pounds 173m. There is little reason to fear a slowdown. Ideal reckons the launch of BVD - video on the desktop - will revive the PC market and that the Internet, the impending millennium and monetary union should mean ever bigger memory needs. House broker Charterhouse Tilney expects profits of pounds 12m for the full year. The shares, 25p up at 675p, are no longer a bargain on 18 times 1998 earnings falling to 15, but they are worth holding.

Comments