The Investment column: Royalblue's success fails to impress City

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The Independent Online
ROYALBLUE found out about the fickleness of the City yesterday. One of last year's most successful flotations, the software group has gone from strength to strength since joining the stock market at 170p in June. Helped by the introduction of the Stock Exchange's new order book - Royalblue has more or less cornered the market in providing the systems which banks use to handle the orders - and the introduction of the IT index, its shares hit a new high of 375p earlier this month.

The headline figures of Royalblue's maiden results - profits before tax and flotation costs rose 50 per cent on a 77 per cent jump in turnover - more than justified the market's confidence. Yet the shares gave up 27.5p to close at 342.5p. In the current heady climate, it seems that Royalblue's comment that the rate of growth would be "somewhat lower" in the coming year was enough to convince some shareholders it was time to lock in some profits.

This may seem strange. After all, Royalblue has plenty of good growth prospects in financial software, where it can expand its product range and sell upgrades that allow systems to cope with the introduction of the European single currency. And it does not rely completely on financial customers. Almost half its revenues come from customer service and call centre management products.

Then there is the US. Royalblue's office, set up last year, is already in profit and the market for its financial products is buoyant. Plans for Nasdaq to move to an order-driven trading system bode well for software sales.

But that does not make the shares attractive. Even after the dip, Royalblue shares trade on a multiple of 47 times expected 1998 earnings - still high for a company which is expected to grow at about 25-30 per cent over the next two years. Royalblue is an admirable company, but for now its shares are high enough.