The Investment Column: Sales slow down at Pace

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The Independent Online
With all the hullabaloo over digital television, Pace Micro Technology had been something of a go-go stock since it came to the stock market last year.

It was priced at 172p which gave it an opening price/earnings multiple of almost 30, pretty racy by any standards, but Pace took the rating in its stride, rising to a hefty premium and then heading towards 250p.

Yesterday, however, the digital picture went decidedly fuzzy and the shares dived. The problems were two-fold. First the company's half-year results included a number of downbeat messages which had analysts cutting forecasts.

Second, there was no news on the potentially huge contract Pace is seeking to make set-top boxes for digital television.

The result was a 25 per cent slump in the share price to 169.5p, the first time that they have fallen below the issue price.

Although pre-tax profits in the six months to 30 November shot up from pounds 400,000 to pounds 10.2m, the market was more concerned by signs of a slowdown in sales.

Pace said that digital satellite receiver shipments were lower than in the previous half-year with slower-than-expected growth rates. This, together with the impact of the strength of sterling, had analysts cutting their forecasts from pounds 26m to pounds 20.5m for the full year.

On the set-top box contract, the City had been hoping for an announcement and some analysts feel that Pace needs to prove it can win contracts such as these against the likes of far larger companies like Philips and Nokia.

Even after yesterday's fall, the shares trade on a forward rating of 26. This reflects the possibility of the BSkyB contract win. If you believe Pace can beat off the likes of Philips et al, yesterday's fall represents a good buying opportunity. It's a big if, however.