Magnum Power interruption

Click to follow
The Independent Online
Magnum Power, a small hi-tech company that makes units to prevent power interruptions in computers, has had a wonderful run since floating last July. Its honeymoon period saw the shares rise more than fivefold to 195p in May.

But yesterday, the roof fell in. Warnings of delays on important US orders and the postponement of the break-even date from this year to next sent shares crashing 35p to 138p.

It is a familiar story. Watchers of hi-tech stocks will know all about Tadpole Technology, whose shares collapsed after poor sales of its lap- top computers. Magnum's revenues for the year to May were just pounds 110,000. Losses doubled from pounds 1.2m to pounds 2.3m as it established a sales force. The gap between sales and costs widened further when a project for IBM was put on hold. Magnum is now beefing up its European sales team to compensate for the weak US market.

Magnum does have important strengths. Its technology is protected by strong patents; it has booked orders worth $750,000 in the first six weeks of its new financial year and just signed a distribution deal with Sumitomo for the important Far East markets.

House broker Henry Cooke Lumsden is forecasting losses of pounds 0.5m this year and pounds 8.6m profits in 1997. New orders would inject fresh life into the share price but further delays could precipitate further sharp declines. As risky as ever.