Net debs fail to shine, but the dance goes on

Author: KATRINA NICHOLAS Date: 16/03/2000

Market analysts have given Australian dot.coms a ``fair" grading for the first half-yearly
reporting season since the sector exploded into life last year.
Most high-tech companies got a ``could try harder" for the second half of 1999. Few
received gold stars. Companies had until close of business yesterday to report their
financial results to the Australian Stock Exchange and more than 25 tech stocks raced
to meet the deadline, many of them disclosing earnings for the first time since listing.
Typically, those with strong financials reported early on while smaller stocks with poorer
revenue and greater-than-expected losses left it until the last minute.
``Companies reporting late usually means that there's not such a great story to tell," said Mr
Marcus Fanning, director of active equities at AMP Asset Management. An analyst with
BNP Equities, Mr Todd Guyot, agreed, claiming that of the companies reporting in the last
few days, many had ``questionable business models" and were still very much in the
concept stage.
Those squeezing in yesterday included Internet security specialist Senetas, child-friendly Internet
provider Kidz.net, online betting outfit eBet, Internet advertising company BMC Media, indigenous
e-tailer Aboriginal Holdings, junior telecoms Pahth Communications and Davnet, digital
photography software provider Ixla and e-commerce group IT&e.
While the majority of these smaller companies reported losses, analysts said investors were not
too concerned.
``I don't think investors are looking for profits in these companies," said an
Internet analyst with CPS Capital, Mr Tony Cunningham. ``They are mainly
looking for announcements and deals for the future."
A Hartley Poynton Internet analyst, Mr David Leslie, said for some of the newly listed stocks, it
would have been ``hard to go too far wrong" this reporting season. ``It's at such an early stage
for a lot of these companies that they are reporting [results] pretty close to prospectus
forecasts," he said.
``The ones which have come on since December have mainly been traded on their announcements
and so results have had a limited impact." BNP's Mr Guyot also said the smaller tech companies were
``driven mainly by news flow" and that investors were more concerned with revenue streams, or the
potential for a revenue stream, than with profits. Demonstrating the current fickle sentiment
surrounding tech stocks, an Internet researcher with van Eyk Research, Mr Rob Prugue, relates the
story of his friend who recently listed an Internet company on the ASX.
``Just before listing he happily informed his investment bankers that a new contract would mean that
his firm would make a modest profit this year," he said.
``But the bankers needed their nappies. `Quick,' said the investment banker, `spend the profit now.
Go into loss. You can't possibly list with the company making a profit.' ``What the banker meant, if
you make a profit you give yourself a lightning rod to which you can be measured," Mr Prugue said.
The chief strategist at HSBC Securities, Mr John Banos, said the attitude was changing for larger,
more-established tech stocks, such as the 36 included in the HSBC technology index.
Mr Banos said here investors were becoming more discerning, dumping without hesitation tech stocks
which did not perform rather than ``buying everything, as was the case about two months ago". He said
that of the 36 companies in the tech index, disappointing financial results had seen the share price of
six come off more than 40 per cent from their peak. Those experiencing sharp falls were Solution 6,
E*Trade, Silex Systems, Reckon, Biota and LibertyOne.
Mr Banos also said that while EPS for the broader market was up 12 per cent year on year, for the
tech sector, excluding Telstra's result, EPS was down 27 per cent.
Tech stocks reporting better-than-expected results included Powertel and ERG, he said.
Mr Guyot also nominated ERG, as well as ComputerShare, as stocks which exceeded expectations
this reporting season. Open Telecommunications, Ci Technologies and Cochlear were in line with
expectations, he said.