Smaller Companies: Computer doctor is looking healthy

THIS week we venture further afield, to the Easdaq stock market in Brussels. Set up a year ago to cater for fast-growing companies from Europe, Easdaq - European Association of Securities Dealers Automated Quote - is home to Dr Solomon's Group, a leading British hi-tech company.

Dr Solomon's makes anti-virus software for personal computers, and is the largest supplier in the UK. Crucially, it has also made strong progress in the US, with about 10 per cent of the market.

Because it also has shares quoted on Nasdaq, the US equivalent of Easdaq, its shares are priced in dollars.

This can be a problem for a private investor - if the exchange rate falls, for example. However, there are also benefits. It is said that US investors have a better understanding of high-tech stocks, which translates into greater demand for the shares. And of course, the exchange rate can also work in favour of the investor.

Dr Solomon's proven technical expertise in creating useful anti-viral software is paying off. In the year to May 1997, it reported sales ahead 78 per cent to pounds 37.2m and a healthy pre-tax profit of pounds 8.9m. So far it has yet to pay investors a dividend.

While Dr Solomon's is among the handful of leading companies in this market - its great rival is the US's Symantec - there are threats to companies dependent on a research-led product.

IBM, for one, is working on a new product which will provide what it dubs an immune system for your PC. If this research leads to something concrete, the product could seriously dent Dr Solomon's position in the market. With this in mind, the group is showing it can expand fast into new overseas markets. The shares have been as low as $16.87, but now stand at $35.50.

That leaves the shares trading on very high multiples. Forecasts by stockbroker Beeson Gregory suggest pre-tax profit could double to pounds 16.6m for the current year, which would leave the shares trading on 37 times earnings.

That is expensive, but then glamorous, high-tech companies rarely come cheap. Of course, any slippage in the rate of growth, or tougher competition, would see the shares slide. But for the meantime, they represent an interesting opportunity.

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