Smaller Companies: Cedardata offering impresses institutions

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The Independent Online
IF it's Monday, it must be impact day. This week's technology newcomer is Cedardata, a software company that supplies accountancy and financial management packages. The company is likely to have a market capitalisation of more than pounds 30m. Turnover is expected to be about pounds 6m in the year to 31 March, with profits of more than pounds 2.5m.

With so many software suppliers opting for flotation, it is becoming more important to discriminate between them. Some operate in narrowly defined market niches, such as recent arrival Clinical Computing with its medical packages.

Finance and accounting is one of the more popular specialities, however. Recently listed Coda provides such packages, as does last year's arrival, Quality Software Products. Established firms such as Sage and Pegasus are in the same broadly defined market.

In fact, the products often target different segments of the market. Although reliable research on software is impossible to come by, competing claims of market leadership could all be true for markets narrowly enough defined.

So, for instance, Sage and Pegasus sell packaged accountancy products for PCs. Cedardata, Coda and QSP sell mainframe packages. The target customers differ, too, with QSP and Cedardata selling exclusively to large companies.

The products on offer have varying technical characteristics. There are two key features to look for. One is open systems packages - software that will run on any hardware. All the recent new issues have got at least part way with this development.

The second is what computer buffs call a 'graphical front-end', which means the user operates the package through Windows or similar software. Many firms are taking this route, and it is one of Cedardata's reasons for raising funds.

With the technological front line shifting rapidly, a sensible question to ask about software flotations is whether the funds raised, along with recurring revenues from maintenance contracts and so on, will be enough to cover product development plans. If not, there could be further calls on shareholders.

Cedardata has one advantage in this respect. It pays a royalty to Oracle, the world's second-biggest software company and the leader in database management, to piggyback its own packages on Oracle software. Oracle carries out most of the product development needed by Cedardata.

The British minnow claims its recurring revenues have always exceeded costs. Furthermore, Oracle is so impressed with Cedardata that it has invited it to sell its financial packages to Oracle's customer base in the US.

A second criterion is the client list. Cedardata is strong in the local authority and health authority markets. Other clients include BOC and Forte. The list is impressive; this latest software offering, whose shares are being placed by Greig Middleton, has aroused intense interest among institutional investors.