Investment Column: Autonomy should be a top pick for buyers


Our view: Buy



Share price: 1336p (+1p)

Looking at a graph of the blue-chip software group Autonomy's shares over the past year should leave investors feeling dizzy.

While most of the FTSE 100 has been desperately trying to keep its head above water, Autonomy's stock has been soaring ahead, up 40 per cent in the past 12 months. While the company churns out the same old stale rent-a-phrase about being "cautiously optimistic," investors who do not already hold the stock should curse themselves for not picking it up cheaper, and then call their broker to buy some shares.

The group, which produces software that helps companies keep track of emails, phone calls and documents, issued a trading statement yesterday saying that its first-quarter results will sail through analysts' expectations. The chief executive, Mike Lynch, says the economy is a risk and growth may not reach the heights of previous years, but it will still be high enough to make most of the rest of the FTSE 100 jealous.

The group benefits from having most of its technology linked to regulatory requirements and while many of its clients may be unhappy about parting with their cash, says Mr Lynch, they prefer it to going to jail.

Indeed, and for investors it would be better to buy the stock than not. The experts at Goldman Sachs have the company on their "conviction buy" list, while Seymour Pierce says the shares will reach the heady heights of 1,559p.

It is easy to put together a case for not buying equities at all given the current market, but if you are going to buy shares it would be folly to do so without adding Autonomy to your portfolio. It is one of the few FTSE 100 names to offer genuine growth in 2009. Buy.



Misys

Our view: Hold

Share price: 129.5p (+13.75p)

It was a cracking day for Misys shareholders yesterday as the group published its interim management statement saying third-quarter revenue was up 70 per cent, leading to a jump of 12 per cent in the stock.

The group, which provides software to 1,200 banks around the world, and through its US subsidiary Allscripts, to the US healthcare industry, was full of good news, saying among other things that debt is down, a majority of revenues are recurring and full-year targets are on track to be met.

Indeed, shareholders have been in clover for the past month with the stock trading up more than 12 per cent. Moreover, there is little to worry about as far as the economic woe is concerned, according to the chief executive Mike Lawrie. "Although difficult economic conditions persist throughout global markets, our flexible business model and diverse recurring revenues are enabling Misys to continue to grow revenues," he says.

If only it were so simple for shareholders, we would all be rich. Despite the good numbers and the jump in the price of the shares, several analysts said yesterday that it is time to take profits and sell up.

Those at Evolution argue that while yesterday's update was "generally positive" it did not change their view that the group will be hit by the slowdown in IT spending in the financial services sector. What is worse, there is not much juice left in the share price, they contend, arguing that trading on 12 times full-year earnings, the shares look pricey, notwithstanding the fact that this is propped up by Allscripts' Nasdaq trading levels. All of the group's end markets are set "to get much worse in the second half," they add. Mr Lawrie, for his part, says he has heard it all before and that the analysts have a habit of getting it wrong.

We reckon it is dangerous to get off a winning horse, especially in these markets, but recognising Evolution's warnings we would keep a close eye on the situation in the coming months. Hold.

Intec Telecom Systems

Our view: Buy

Share price: 41p (+6.5p)

Despite its rather grand-sounding name, Intec Telecom Systems is a company that provides telecommunications groups with software to work out and produce bills that are eventually sent off to the likes of you and me, much to our collective regret.

It is a company on the up, however, and those who already hold the shares are doing very nicely. The stock was up another 18 per cent yesterday, after a rise of 33 per cent in the last quarter, on news in the group's trading update that it expects to report record first-half results in May, which analysts say will beat their expectations.

So where is the cupboard-dwelling skeleton? Well, there is not much evidence of one as far as investors are concerned. Despite the recent share price growth, the stock is still cheap say watchers at RBS. "Annualising the first half, suggests full-year revenue of £159m and normalised pre-tax profit of £17m. [The] New numbers put the shares on a December 2009 enterprise value to net operating profit after tax of just 6.3 times. This looks modest for a company delivering double digit growth and upgrades," they say. Buy.

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