Investment column: Sherwood

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The Independent Online
SHERWOOD International, the IT supplier to the insurance industry, has reaped the benefits of its decision five years ago to expand its horizons beyond the Lloyd's insurance market.

Although Lloyd's is still a customer, it accounts for a small part of group revenue now. The bulk comes from supplying software solutions to the general insurance market, with a growing business in supplying contract staff to clients such as the Ministry of Agriculture.

The shares are off their recent 560p peak earlier this year, but jumped 30p to 487.5p yesterday on news of a 56 per cent rise in first-half profits to pounds 2.9m.

A key recent focus for Sherwood has been pushing its Amarta software programme to US clients. Rather than have an unknown UK company knock on the door of America's largest insurance companies, Sherwood has signed partnership deals with some of the big accountancy firms who act almost as Sherwood's agents in return for a fat installation fee. Given that contracts can be worth $1.5m apiece, Sherwood is prepared to forgo some of the upfront revenue in return for a licensing income and the ongoing service support revenue.

So far Sherwood has signed up Deloitte & Touche and KPMG, and has sealed three US deals through this method. As the US remains the largest insurance market, this remains the prize. Progress there is good, with the US accounting for 30 per cent of sales in the first half, up from 24 per cent in the previous year.

On full-year profit forecasts of pounds 7m the shares trade on a hefty forward multiple of 44, which looks quite high enough for now.