Shares: Sky's the limit with hi-tech high-flyers

THE HEAD of a leading personal computer company in the US estimated recently that by the end of the decade the number of these machines in use would have risen ten-fold to 600 million. If he is anywhere near right, many computer-related businesses face spectacular growth, and investors should be looking for potential high-flyers.

One company that has already won considerable recognition is Micro Focus at pounds 26.55. The shares have come up from a low of 80p in 1988, though by US standards that is just warming up.

American investors are piling into the shares. The company, which recently acquired a US quote and reports in dollars and pounds, looks to have massive growth ahead. Since 1987 pre-tax profits have climbed from pounds 1.3m to pounds 18.1m, with pounds 21.7m expected for the year to 31 January 1993 and pounds 30m-plus the following year, helped by devaluation. The prospective 1993/4 PE ratio is 18.4 which doesn't look too demanding given the growth rate. The company's speciality is helping large corporations to improve the productivity of their computer programmers by doing mainframe work in the business language, Cobol, on personal computers.

Sales and profits took off in the later 1980s when the group launched a packaged product, Workbench, which has become a top seller worldwide. One US observer argues that the company has the potential to grow by 25 per cent annually for years ahead because it has still only addressed 10-20 per cent of the potential market of 560,000 programmers working for large corporations. A continual stream of new products and net cash balances of pounds 40m reinforce the growth picture.

A more speculative choice is Telemetrix at 74p, a company known until recently for making hefty losses. That reputation is fast disappearing partly because of a spectacular US purchase and partly because of changes at the UK end of the group.

Its acquisition of GTI Corporation, whose shares have climbed from dollars 1.50 to nearly dollars 29 in less than two years, evokes memories of Pentland's coup in buying a controlling interest in tiny Reebok before the latter became a global giant. Telemetrix owns 62 per cent of GTI after recently selling 3 per cent to clear its debts, leaving it with a stake worth over pounds 100m or 126p a share.

On top of that the UK group has other interests that have been rationalised for new managememt led by Arthur Walsh, formerly of STC, and Tim Curtis, formerly of Unitech. These interests are expected comfortably to make over pounds 2.5m in 1993 with a minute tax charge because of earlier losses. On a PE of 10 they should be worth nearly an additional 30p a share, which makes Telemetrix worth, on paper, 150p a share or double the latest share price.

A problem for UK investors is that the success of any investment in Telemetrix will depend on GTI, which may prove to be another short-lived US west coast computer wonder. But the risk looks worth taking.

GTI has taken off since 1991 after acquiring a 91 per cent stake in Valor, itself formed when key individuals left another US corporation to create products and services for the fast-growing LAN, or local area networking, business. Valor supplies products built into the boards used by all the leading players in the LAN business, so should do well whichever of its customers does best in the the marketplace. Next year's profits are expected to grow by 35 per cent to dollars 17.1m putting GTI on a PE not much over 20, with sustainable growth around 25 per cent expected thereafter.

Computer stocks often give investors a bumpy ride. Micro Focus shocked investors in the mid-1980s when accounting changes slaughtered profits; Telemetrix had a dreadful period until it acquired the boss of South Africa's leading electronics company as a major investor.

My third choice, Misys at 318p, also gave investors palpitations when analysts who had been expecting profits of over pounds 15m in 1990/1 were hit by a profits warning and a final outturn of pounds 5.6m. The shares collapsed to nearly 50p but the group, led by a former Hanson executive, Kevin Lomax, was down, not out, and is now making a spectacular comeback.

The story this time is more the classic recession pattern of countering weak demand by eliminating costs. Also, a start-up led by former employees in the group's financial services business, where it is the market leader supplying computer systems to the insurance industry, has collapsed leaving Misys firmly in charge.

The group reports a rebound in profits to 31 May 1992 of pounds 9.1m and the annual meeting heard that first-quarter sales had shown a 'substantial increase' from a year earlier.

Analysts are looking for profits of pounds 14m in the current year for a prospective PE of 12.6, and provisional estimates of pounds 15.4m for next year would soon be left behind if tentative signs of recovery in demand are sustained.

Start your day with The Independent, sign up for daily news emails
News
Sir David Attenborough
people
Life and Style
Young girl and bowl of cereal
food + drink
News
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
PROMOTED VIDEO
Sport
football
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
i100
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
tv
News
i100
Environment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
environment
Life and Style
tech
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

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness