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The Market
Leading shares in London finished the Friday session in positive territory, reversing early sharp losses as Wall Street moved higher in early trading and tech stocks, which saw sharp falls in morning trade after another plunge overnight on the Nasdaq, rebounded from their lows as buyers began to move in at lower levels. Nevertheless, the "new economy/old economy" switch was still very much in evidence ahead of both the quarter-end and new fiscal year.
The FTSE 100 index closed the session on Friday 95 points higher at 6,540.2, just shy of its 6,557.4 high, but well above the 6,385.8 low seen in early morning trade. The showing in the other FTSE indices was broadly lower, with the techMARK 100 index the worst hit once again, closing 68.21 points lower - but well off its session lows.
Only the FTSE 350 index managed to buck the dull trend, up 36.2 points, excited by a raft of positive corporate news and press tips and comment. Volume was a solid, though unimpressive, 1.53 billion shares in 140,727 transactions, helped by selected end of quarter and fiscal year-end "window dressing" and hefty turnover in Dorling Kindersley in the wake of the Pearson market "raid" this morning.
City investors suffered another morning of pain as the rout on Nasdaq overnight, which saw the US tech-dominated index slide over 200 points - triggered yet another bout of selling in tech, telecoms and media issues. Nasdaq's slide hit the techMARK index hardest, with blue chip and second line tech issues also seeing hefty, and sometimes indiscriminate, declines. The Nasdaq fall prompted an almost immediate switch into so-called "old economy" stocks, which moved sharply higher as investors' priority, yet again became value, especially after the collapse in share prices seen since the end of last year.
Nevertheless, antipathy towards the "new economy" stocks, which sent the wider market crashing, proved to be short-lived and by midday, serious investors had used the opportunity to pick up "quality" tech and telecoms stocks at the lower levels. What was perhaps evident though is that the private clients' love affair with "new economy" issues may have finally begun to wear off and that, in future, they may be choosier about the quality of investments they are willing to put their money into.
Fund managers, however, seemed keen to pick up the "hard core" tech and telecom issues at the lower levels despite the fact that the quarter-end and fiscal year-end is rapidly approaching. This renewed interest in selected "new economy" stocks proved to be well-founded, with Nasdaq moving sharply higher in early deals. The initial gains, however, were soon pared back as the Dow quickly moved into negative territory - down 7.84 points - and Nasdaq fell back from its early high to rest a short 30 points higher on the day at the London close. But the real key for sentiment on both sides of the Atlantic will be how the two markets perform this week as money from ISAs begins to flow in and fund managers are - once again - forced to rejig their portfolios.
Prominent among the fallers throughout Friday was Thus - which topped the list of FTSE 100 decliners - shedding 105-1/2 pence or 18.38 per cent to 468-1/2 after news of a big cut in profit and revenue forecasts by heavyweight broker Goldman Sachs. Goldman Sachs reduced its revenue forecast for Thus for the year to March 2000 to £215 million from the previous £230 million, with the following year forecast cut to £289 million from £317 million.
The broker now expects Thus' EBIT to show a loss of £7.2 million for the year to March 2000, against the previous forecast of a profit of £8.3 million, with the following year EBIT expected to show a loss of £4.9 million instead of a profit of £19.8 million. These reductions reflects a combination of factors, mainly at the commodity end of the business. Among these, Goldman highlighted slippage in the launch of ONdigital VSP, a much slower rate of acquisition among consumer telephony customers due to a shift in emphasis from partner Scottish Power and the impact of the repositioning of the Netherlands internet business. The broker also chopped its price target back to 700 pence per share from 900 pence, but retained the stock on its "Recommended List".
Sentiment in the stock was further hit by news that its Internet provider arm Demon has been successfully sued for publishing a libel on one of its chat pages. The award - the first of its kind for libel on the net - totalled over £500,000. Big falls from other telecom and technology issues also weighed on blue chip sentiment. Sage Group fell 69-1/2 pence to 703-1/2 pence, despite an increased 12-month price target from Warburg Dillon Read, with Telewest down at and Energis lower at.
Meanwhile, Misys fell 42 pence to 876 pence as Goldman Sachs repeated its "market performer" rating, but pointed out that the stock was looking vulnerable, while Energis shed 225 pence to 2,923 pence. Psion and Freeserve, which had posted hefty declines throughout the session, staged an impressive turnaround, gaining 293 pence to 4,162 pence and 14-1/2 pence to 497 pence respectively.
Elsewhere, GUS fell back 5-3/4 pence to 381-1/2 pence, hit by a ratings downgrade by Deutsche Bank to "market perform" from "buy" and as break-up talk - which supported the stock late last week - finally began to fade. BAT topped the list of FTSE 100 risers, added 33-3/4 to 345-1/4, reflecting strong gains in US tobacco issues following a ruling on lump-sum settlements in Florida. Overnight, Florida's attorney general drafted a proposal that could shield the industry from having to pay billions of dollars in punitive damages. The news offset that of another $3.4 billion lawsuit filed against eight tobacco firms - including BAT unit Brown & Williamson - by 145 New York hospitals was shrugged aside.
Both general and food retailers moved into the limelight late in the day following news that several of the major global players are forming a web-based partnership
to establish a WorldWide Retail Exchange, which will have combined sales of $300 billion. Tesco added 7-3/4 pence to 208-3/4 pence and Kingfisher finished just lower at 515 pence. Other key European players in the new venture include Dutch group Ahold, France's Casino and Auchan, with Albertson and Safeway Inc. participating in the US.
Computacentre
Computacentre, the computer distribution and services group, reported a 16 per cent increase in pre-tax profits to £75.1 million for the year to 31 December. During 1999 Computacenter continued to invest across all of its businesses, consolidating its position as the leading supplier of distributed IT and related services to the European corporate and public sector marketplace.
International sales grew significantly in 1999, with £300.1 million (17.0 per cent) of the total Group turnover coming from sales in France, Germany and Belgium. The greater part of revenues, the remaining £1.46 billion, or 83.0 per cent, was again generated by UK businesses. As in previous years, recruitment and training remained the biggest investment with headcount across the group growing by 22.6 per cent to 5,618 at the end of 1999. During the year, Computacentre also continued to increase its investment in the development of best practices and systems that allow it to deliver its growing range of services.
As anticipated, growth in the market for distributed IT products slowed in the second half as compliance projects were completed and other projects postponed. Demand for the group's services however remained strong throughout the second half of the year, with the result that, overall, the managed services contract base grew 32 per cent over 1999. Computacentre anticipates increased customer focus on distributed IT investment during 2000 as organisations re-focus on deployment of IT for competitive advantage.
The huge anticipated growth of business-to-business e-commerce systems and the arrival of Microsoft's Windows 2000 operating system will both serve as significant growth drivers for the group over the coming year, particularly in the second half. Meanwhile, demand for technical consulting services has again been one of the fastest areas of growth within the group. The appointment of Computacentre as a Microsoft Alliance Partner in October 1998 has helped to fuel this demand and enabled the group to invest in training additional Microsoft accredited professionals in 1999 to fulfil customers' requirements.
During 1999 Computacentre has seen the first successes of The iGroup, the e-business division formed in 1998. Computacentre continued to invest in The iGroup in 1999, establishing a group of over 60 specialists with Internet and Intranet design, development and consulting skills. Computacentre anticipates healthy demand for its Microsoft consulting services in 2000 and beyond with the deployment of Windows 2000 by corporate and government organisations across Europe.
Meanwhile, Computacentre continues to develop its international capability via its direct subsidiaries in France, Germany and, more recently, Belgium. As a whole, international operations increased as a percentage of group revenue from 13 per cent in 1998 to 17 per cent in 1999. The group's focus remains to capture market share rapidly and to deploy core Computacenter operational systems and business practices already proven in our UK business operations.
In France, due to the rapid expansion of the French business and plans for future growth, Computacentre moved into a new larger operations and headquarters facility in Paris during the first half of the year. Computacentre France's performance, during the second half of 1999 in particular, and the investments it has made to accommodate future growth, promise well for 2000 and beyond.
In Germany, as in other markets, trading conditions were influenced by Y2000 issues and Computacentre's financial performance was impacted by the relatively small scale of its German operations. The group anticipates continued strong growth for its services in 2000, not only in the UK but also across Europe as its international businesses develop further. Computacentre also believes that the significant pent-up demand within its customer base due to Y2000 will start to be released during the first half of the year.
Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future.
James Dimech DeBono is a qualified accountant with a strong academic background in quantitative financial economics and a keen interest in investment management. He can be contacted by e-mail:
JamesDebono@CompuServe.com
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