The Investment Column: MDIS

SHARES IN MDIS, the software engineer formerly known as McDonnell Information Systems, tumbled 20 per cent yesterday, after the company posted another profit warning.

MDIS investors were similarly burnt only five months ago, and shortly after the company's flotation in 1994. The company says that it is being squeezed by a shrinking enterprise resource planning software market.

Should MDIS investors hold on for recovery?

MDIS helps companies centralise their computer software, enabling greater sharing of information around the organisation. It has a basic platform of proprietary software to which it adds additional features tailored to a particular company. The problem is that it is being edged out of its markets - traditionally mid-size companies - by larger rivals such as the German-based SAP, and Baan of Holland. They have exhausted their large company customer base and unable to expand horizontally are expanding vertically.

Their experience, reputation and size makes them formidable competitors and only companies with niches, such as specialist expertise in insurance software, will be able to survive. The company says first half losses at Glovia, its joint venture with Fujitsu of Japan, will exceed profits in its UK operations. The shares, which closed down 5.25p at 20.5p, are already well down on their 12 month high of 43.5p.

Holders of the stock may be tempted to hang on for a bid. However, with companies freezing IT spending ahead of the millennium, the outlook for MDIS remains weak and the shares could fall further.