The Investment Column: 365 Corporation

HOW ARE Internet companies valued? It's a knotty conundrum, so much so that the joint brokers to the flotation of 365 Corporation differ in their valuations of the company by 50 per cent, as investors who registered will discover when the prospectus arrives this morning.

365 Corporation has the right idea. Barriers to entry on the Internet are nil, so it aims to develop competitive advantage by having excellent content. 365 has already developed 14 sites, mainly on sporting themes but also catering for music fans and lonely hearts.

Unlike other net ventures, 365 also has profits, following its acquisition earlier this year of Symphony Telecommunications, a business telephony services provider. While that provides some cashflow, 365's directors are keen to generate some highly-rated paper to enable them to acquire expertise in overseas markets to help them expand further into Europe. The paper will also be deployed in the acquisition of other content providers and Internet sites with quality surfers.

But how valuable will 365's paper be? Cazenove's valuation of 365's Internet business ranges from pounds 68m to pounds 201m. Where exactly depends on whether you pick, say, trade sale comparisons or sales multiples as your valuation method. Pick a fair value of pounds 121m and throw in pounds 86m for 365's telephony, integration potential and cash and the group is worth pounds 206.9m. Durlacher, which owns 10 per cent of the group, is altogether more bullish. On a sum-of-the-parts assessment, 365 has a core value of pounds 301.7m.

The prospectus hedges its bets and settles on an offer range of 135p- 150p per share, valuing 365 at pounds 259.2m at the midprice content. Whatever the company is worth, the fact that the shares are being listed in London only suggests a degree on insulation from US tech stock's volatility. With 365's users currently doubling every three months, the shares are worth a punt.

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