MDIS shares crash on first figures: Flagship new issue halved in value Shock likely to damage software sector and threaten future floats

SHARES in McDonnell Douglas Information Systems halved in value yesterday after the software group reported a 33 per cent fall in first-half profits before tax and warned that the full-year figure would be lower than last year's pro forma profits.

MDIS is one of this year's biggest new issues. It came to the stock market in March at a share price of 260p, valuing the company at pounds 260m. The shares closed at 112p last night, down from 216p.

Institutional investors said the shock was likely to damage new issues and the software sector. Other companies in the sector, such as Coda and ACT, have recently issued surprise profit warnings.

Mike Bishop, of Gartmore, said: 'Everyone recognises that companies like these are a volatile investment, but this will certainly lead to a lower rating for the sector.'

Ross Jobber, software analyst at UBS, said: 'MDIS has done untold damage. It was no Mickey Mouse issue and a lot of serious investors have lost a lot of money.'

MDIS has a heavyweight board, led by the non-executive chairman Ian Hay Davison, and respected advisers. The company was formed in 1993 in a management buyout from McDonnell Douglas, the US aerospace company.

Big shareholders include Mercury Asset Management, whose latest reported stake was just over 10 per cent, and Prudential with about 6 per cent. These suffered capital losses of pounds 10.5m and pounds 6.5m respectively yesterday.

One institutional shareholder said its first reaction had been to consider suing but it had decided not to after talking to the company.

Another said the news would make institutions wary about new issues no matter how big and respectable they looked.

MDIS is the sixth of this year's new issues whose share price has tumbled after a profit warning. The others were Coda, Aerostructures Hamble, a buyout from BAe, the schools supplier Nottingham, a buyout from Coats Viyella, DRS Data & Research and United Carriers.

Baring Brothers, sponsor of the MDIS issue, and house broker NatWest proclaimed their continued support for the company. NatWest said it had been kept fully informed of events and this lay behind the decision to bring the interim results forward by a week.

The broker downgraded its forecast for full-year profits before tax from pounds 25.7m to a pro forma pounds 17m, giving earnings of 11.4p a share. In 1993 profits were pounds 21.2m and earnings per share 14.27p.

Profits before tax on a pro forma basis fell to pounds 5m in the first half from pounds 7.5m in the first six months of 1993. Turnover fell 3 per cent to pounds 68.6m.

The group blamed slower than anticipated orders from public sector customers and the financial sector. Jerry Causley, chief executive, said a banking software system completed by the end of last year had not yet secured any firm orders.

'There is no problem with the product. We just overestimated our ability to secure orders within a particular time frame,' he said.

Mr Causley said software sales to the public sector had slowed, including orders from local government and police forces.

The company said contracted revenues for the next five years stood at more than pounds 170m. Mr Hay Davison said the board had confidence in growth prospects and the group's strategy.

MDIS declared an interim dividend of 2.3p 'in view of the fundamental strength of the business'.