The Investment column: Microvitec finds several bugs

The stock market takes no prisoners when a company fails to live up to its expectations. When that company has said as recently as March that it is "encouraged by the promising start in 1996 and is confident of the potential for the group", it can expect no mercy when it turns round in August with a profits warning.

Microvitec, a computer group with interests in screen manufacture, network products and software, cannot be accused of half measures. It warned yesterday that the receivership of Escom would hit its flat monitors business, problems at SilCom, a Canadian networking subsidiary, would wipe another pounds 1m from full-year profits and the high costs of launching an accountancy software package would complete the gloomy picture.

No surprise then that its shares closed 10p lower at 43.5p yesterday, a 19 per cent decline on the day. The extent of that fall reflected analysts' pique that their previous forecasts of about pounds 4.7m profits for the year to December would have to be reined in to no more than about pounds 3m. After the pounds 1.6m reported for the six months to June, only about pounds 1.4m is to be expected in the second half.

Interim profits emerged bang in line with last year's result as the benefit of higher sales of pounds 33.8m (pounds 26.6m) was wiped out by lower operating margins and higher interest charges. Earnings per share declined 5 per cent to 1.40p as the shares issued for recent acquisitions took their toll. The dividend reflected the confidence of James Bailey, executive chairman, that 1996 will be seen as just a blip in an otherwise steady upward progression, rising from 0.4p to 0.425p.

He could be right. Microvitec appears to have some good products and is benefiting from fast-growing markets. Demand for flat LCD monitors continues to increase as costs reduce and performance improves. The trend towards stringing computers together in networks is accelerating and the software division has a strong position in the large accounting software market.

On the basis of pounds 3m and eps of 2.6p this year, the shares trade on a prospective p/e multiple of 17. Having given the market such as rude shock, they can't expect a higher rating and will probably settle even further.