Autonomy shares plunge 15% as profits rise 50%

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The Independent Online

Autonomy, the corporate search software company, lost nearly 15 per cent of its value yesterday despite publishing first-quarter figures ahead of expectations showing revenues up 61 per cent and net profits up 50 per cent.

Though the company pointed to strong growth and the acquisition of new customers, its unexpected decision not to upgrade earnings predictions for the coming year unnerved analysts and the shares closed down 14.75 per cent at 844p.

Autonomy software uses what it calls "meaning-based", pattern-recognising technology to dig information and understanding out of the vast, unmanaged data held by corporations. And with 90 per cent of sales driven by regulation, the business stands to do well from the crisis engulfing the financial services sector, according to Mike Lynch, the chief executive.

"The sub-prime problems are a big driver for us because the banks have to go through a lot of information, both as regulations come in and also with regards to potential litigation, so they have to invest in software to do that," Mr Lynch said.

Yesterday also saw the announcement of a deal for the company's compliance systems with an unidentified investment bank – believed to be one of the top five – that will pay over two years and ranks as one of the biggest the company has ever done.

Mr Lynch said he remained bullish, but that he was unwilling to boost forecasts on performance as a matter of prudence.

"The fact that we don't want to play the game of whether growth is going to be 60 per cent or 160 per cent until we have further evidence is really just taking a conservative approach that is in the interests of our long-term shareholders," he said.

To some extent the company is a victim of its own success.

"The issue is that the stock was very expensive, because of the kind of growth Autonomy has been seeing, so there is very little room to come out with anything that wouldn't be construed as negative," George O'Connor, an analyst at Panmure Gordon, said. "So a number of people were looking for an upgrade of earnings forecasts, and read the lack of it as a profits warning."

But growth prospects remain strong, not least thanks to the increasing focus on regulatory compliance. "Search is becoming a standard office function and Autonomy, which was a UK tiddler, has grown into a global gorilla in an expanding market," Mr O'Connor said.

The company's pre-tax profits for the quarter were $23.6m (£12m), compared with $16.1m for the same period last year. Sales were $105m, compared with $65m in 2007. It has $95.5m in cash and no net debt.

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