Time to take byte out of profits at Amstrad

Sir Alan Sugar, always the iconoclast, seems to have proved the doubters wrong by generating profits from his em@iler device, a telephone with a small screen that allows people to email and use internet search engines such as Google.

His Amstrad group yesterday said the em@iler had moved £1m into profit in the six months to 31 December on sales up from £4.2m to £6.5m. Amstrad has slashed the price of the em@iler from £99 to £29 but makes a profit by taking a share of the telephony revenues generated when people use it.

Two years ago we advised readers to avoid Amstrad shares because the em@iler was too risky. Although it took a year for the City to come round, we were eventually proved too cautious. Emailing and searches are the two most popular uses for the internet among consumers. The share price has stormed ahead and at 185p is now trading on a forward price earnings ratio of 176 times 2005 earnings, which is impossible to justify. While Amstrad is not a one-trick pony - it also makes set top boxes for BSkyB that contributed to group interim profits of £7.1m - the shares have got way ahead of themselves. Those with profits should take them.