Shares: A safe pair of hands

The Motley Fool started as a newsletter and has become one of the most popular personal finance websites. Anyone who follows its philosophy is called a `Foolish investor'

It would be hard to run a real money portfolio looking for the world's Rule Breaking companies, as we are doing at the Motley Fool, without thinking about the internet with its myriad of tentacles. There is no way we would jump on to any bandwagon and just buy anything with .com in its name though, as many people seem to be doing these days.

No, we would only consider buying shares in companies that we understand and that we believe have a very good chance of being among the long-term leaders of electronic commerce.

As with any emerging technology there are plenty of starters but far fewer finishers, and e-commerce markets will surely be no different.

So what precisely are we looking for? We're looking for companies that are clearly the leaders in their industry (and "internet" isn't a single industry, by the way, no more than "high street" or "out of town shopping centre" comprise single industries). And it must be an important industry too, so we won't be considering e-meringue.com, or any passing fads that we come across.

What is the biggest worry that most people have regarding the use of the internet? Here's a clue: it is a worry that applies to the use of credit cards for buying things. That's right; people are worried about security. When it comes to shopping on the web, that worry is largely overblown. In fact, there is more risk of fraud occurring when you let a waiter at a restaurant take your card away for payment, or allow a filling station cashier to swipe your card out of your sight.

Some internet companies, and Amazon.com springs immediately to mind, even guarantee to refund the cost of any fraud that might happen when using their site for purchases. So if retail sales, where the individual amounts of money winging their way across the wires are pretty small, is not really the area for growth in the online security business, then what is?

How about banking? That's certainly a business that needs watertight security. In fact, big business transactions of any kind seriously need to be protected, and that is where a European company that specialises in this area comes into the picture.

Baltimore Technologies plc was born from the merger of Zergo Holdings, with Baltimore Technologies. It specialises in Public Key Infrastructure (PKI) systems, cryptographic tool kits, security applications and hardware cryptographic devices.

And if that sounds like cryptobabble, it really just means encryption technology. PKI is the globally accepted standard in cryptography these days, and the market for it is going to be big. There have been many estimates of its potential size, but it is almost certain to reach tens of billions of dollars a year before we get too far into the next millennium.

Baltimore's third-quarter sales, for the three months ending September this year, amounted to pounds 6.4m, which was 63 per cent up on the same quarter the previous year. The company did record a big loss, of pounds 24m, in the first nine months of the year, though that was pretty much in line with its plans. And it is just about the only global player in the PKI business outside the US.

So how did Baltimore get into its position? The American government's paranoid, and rather stupid, ban on the export of industrial strength encryption products certainly left the global market wide open. And it is into that void that Baltimore stepped. But the world market is opening, and American companies will be important contenders.

So who is Baltimore's competition? The company itself sees Entrust Technologies as the market leader. Entrust has offices in Canada, the UK, Switzerland, Germany and Japan, although its headquarters are in Texas. Total revenues for the second quarter of 1999 increased 80 per cent to $19.8m (pounds 12.4m) from $11m the previous year, and the company also reported a fully diluted net profit for the quarter of two cents a share. Serious competition, then.

Another American company, VeriSign, may also be a key player. VeriSign had a first quarter turnover of $15.6m for the quarter ended 31 March, 1999.

And finally, we must never forget Microsoft. While Windows 2000 will have PKI capability built in, banks and other high security businesses won't even think of using it for two years at least, and many of the most important security areas of these businesses will have nothing to do with desktop PCs or PC networks anyway. But the Microsoft monster can never be ruled out.

So is Baltimore a good investment? That's a personal decision, of course, and we're not really sure yet, particularly at today's heady price.

As one of our message board regulars has pointed out, the share price levels of the big PKI competitors seem to be based on each one of them grabbing the lion's share of the market, which is something they obviously cannot all do.

n www.fool. co.uk

ASK THE FOOL

What does IPO mean?

JA, Cleethorpes

The Fool replies: IPO stands for "Initial Public Offering" and is the American term for flotation, the act of placing a private company into public hands by selling shares. You may also hear another American term - Secondary Offering, when a company that is already public offers extra shares for sale to raise new capital.

n If we publish your question, you'll win a copy of `The Motley Fool UK Investment Guide'. Email UKColumn@fool.com or post to Motley Fool, 79 Baker Street, London W1M 1AJ.

FOOLISH TRIVIA

The first five correct answers out of the hat win a copy of `The Motley Fool UK Investment Guide'.

British Sky Broadcasting (BSB) has announced its intention to acquire a 24 per cent stake in a German television firm. Name the company.

n Answers by email to: UKColumn@fool.com or by post to: Motley Fool, 79 Baker Street, London W1M 1AJ.

n Last week's answer: NXT

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living