Azlan offers a high-tech lesson

The Investment Column

In its short life on the stock market, Azlan, a computer networking products distributor, has provided an A-Z of the risks and rewards of investing in hi-tech companies. Floated at 230p on a fancy multiple two- and-a-half years ago, the shares soon slid to a low of 118p after a profits warning led to David Randall, then managing director, being relieved of all executive duties. Into his shoes stepped Christian Martin, the former finance director. A focus on fewer suppliers, further expansion into Europe and a series of distribution deals with industry powerhouses such as IBM and Netscape have transformed Azlan's fortunes.

Yesterday, the shares jumped 26p to a new high of 665p after the group posted a 169 per cent rise in pre-tax profits to pounds 10.5m on sales more than doubled at pounds 196.5m. Stripping out first-time contributions from Italian, Dutch and Scandinavian acquisitions bought during the year, underlying turnover growth was still 90 per cent, while like-for-like profits grew by 145 per cent.

Technological change, not least the Internet, is driving this phenomenal expansion. Networking - enabling corporate computer users to operate more effectively - is the fastest growing information technology market after personal computers. According to analysts Dataquest, the market in Europe alone is expected to grow from $6.5bn to $8.6bn within two years. Azlan benefits because the market is so fragmented - a manufacturer alone cannot get a new product out to the tens of thousands of potential customers and dealers within its six to nine month shelf life.

Further progress is likely if Azlan can keep a tight hold on inventories, hold gross margins near the current 24 per cent and avoid fouling up on the Continent. House broker SBC Warburg looks for pre-tax profits of pounds 15.5m, implying a p/e in the high teens. The premium rating is deserved.