The Investment Column: CMG needs fresh direction

THE BOOM for well-positioned information technology groups has shown few signs of slowing so far this year. That may only beg the question of what impact the millennium bug will have in the coming months.

CMG, the Anglo-Dutch IT company, shed little light other than noting that the millennium bug will have a negative effect, while maintaining that the company would continue to surpass the industry's 15 per cent plus annual growth rates.

Rated at 49 times expected full-year profits of pounds 79m, CMG has to perform better than the industry average. It did just that yesterday, posting better-than-expected interim results showing a 51 per cent rise in pre- tax profits to pounds 36.8m.

Sales soared 50 per cent to pounds 290.5m. What's particularly impressive is that organic growth accounted for over 80 per cent of the sales gain; acquisitions added a relatively small amount. Given CMG's single-digit market share in most countries outside the Netherlands - there it commands 12 per cent - there's little reason why organic growth can't continue.

Of CMG's four revenue streams, systems development, including installation and integration, accounts for around 60 per cent of total sales. However, the reliance on financial services clients - in particular investment bank ABN Amro, which accounts for some 5 per cent of total sales, is a potential source of weakness given evidence of IT budget pruning among banks.

Other sectors, including telecoms and trade and industry, delivered respective 95 per cent and 65 per cent revenue growth in the half. Indeed, CMG's mobile message product has around 50 per cent market share in Europe.

The 4.5 per cent gain to 1,940p in CMG's shares yesterday was the market's gut reaction to thestrong results. Though the group has ample capacity to grow further across Europe, four-fifths of earnings still come from the Benelux region. In that respect, CMG is an old story that needs to write new chapters in other markets such as the UK, France and Germany. Pending further evidence of earnings diversification and clarification of the impact of Y2K, the shares are fully priced.