The Investment Column: SDX plugs into telecoms market

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The Independent Online
SDX plugs into telecoms market

When the telecom industry becoming increasingly global, it's hard to imagine any small company taking on the giant equipment suppliers and winning. But that's precisely what SDX Business Systems, a telecom equipment minnow which floated at 160p just a year ago, has done. According to industry watcher Dataquest, SDX was the third-largest supplier of equipment to UK businesses in 1996, behind BT and Siemens, the German electronics giant. The year before, it was 11th. And judging by the 38 per cent jump in pre-tax profits in the year to last October, that growth is continuing.

Credit for this goes to Index, SDX's new digital-switching product which allows companies to have voicemail, Internet access and data transmission on their telephone exchange. The system is also capable of integrating a company's telephone and computer networks - the much-heralded "convergence" that telecom industry gurus regularly predict.

Hence SDX is taking market share - it has about 9 per cent of the market and can see that rising to the mid-teens in the next few years. But taking into account all the new features it is adding to Index, their available market is also growing at a fair lick. It also has plenty of scope to take its products overseas. International sales are just 11 per cent of the total. If SDX can find the right partners in the US, France and Germany that should rise rapidly.

So far, SDX has escaped the attention of the big boys by sticking to small and medium-sized firms, which means no more than 300 extensions on the telephone system. The danger is that as it becomes larger competitors will sit up and take notice. But on profit forecasts of pounds 5.3m the shares, down 1.5p to 229p yesterday, are on a forward multiple of 23. For this impressive little business, that's worth paying.