Investment Column: Misys high on banks' roll

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The Independent Online
Misys, the computer software group, has been a not unrewarding investment since the shares dipped to a recent low of 317p in March 1995. Yesterday, after adding another 55p, the price hit a new high of pounds 14.65. The reasons for this performance are not hard to fathom from just a cursory glance at the results.

Six years ago the group was making pre-tax profits of pounds 5.6m on sales of pounds 11.5m. Figures just in show profits of pounds 62.5m for the year to May, up 24 per cent, on a 16 per cent increase in sales to pounds 326m.

The main driver continues to be supplying both the software and the service to maintain it to banks around the world, which now accounts for over half group turnover. Stripping out recent acquisitions, mainly Summit and Frustum in the US, underlying profits growth was 26 per cent.

Despite Misys' death-defying balance sheet, which sports a massive pounds 198m deficit on shareholders' funds, this looks a dream business. Banks' voracious appetite for new software is being whetted by the rapid establishment of financial infrastructures in rapidly developing markets like the Far East and Eastern Europe and a continuing myriad of pressures on banks in developed Western markets.

Although Misys derives 85 per cent of its business from existing customers, it only claims to sell to 1,400 banks out of an estimated 25,000 world- wide. There is clearly plenty still to go for, while European monetary union should also boost profits.

Banks are on a roll just now and there is an obvious danger that all this will go into reverse when times get tight again, as has happened with the group's insurance operations. A downturn in general insurance broking helped drag profits from supplying this market back from pounds 12.6m to pounds 12m last year.

Even on profit forecasts lifted to around pounds 74.5m for the current year, the shares trade on a heady p/e ratio of 23. High enough for now.

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