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-yearlyreporting season since the sector exploded into life last year.

Most high-tech companies got a ``could try harder" for the second half of 1999. Fewreceived gold stars. Companies had until close of business yesterday to report theirfinancial results to the Australian Stock Exchange and more than 25 tech stocks racedto 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 poorerrevenue 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 MrMarcus Fanning, director of active equities at AMP Asset Management. An analyst withBNP Equities, Mr Todd Guyot, agreed, claiming that of the companies reporting in the lastfew days, many had ``questionable business models" and were still very much in theconcept stage.

Those squeezing in yesterday included Internet security specialist Senetas, child-friendly Internetprovider Kidz.net, online betting outfit eBet, Internet advertising company BMC Media, indigenouse-tailer Aboriginal Holdings, junior telecoms Pahth Communications and Davnet, digitalphotography software provider Ixla and e-commerce group IT&e.

While the majority of these smaller companies reported losses, analysts said investors were nottoo concerned.

``I don't think investors are looking for profits in these companies," said anInternet analyst with CPS Capital, Mr Tony Cunningham. ``They are mainlylooking for announcements and deals for the future."

A Hartley Poynton Internet analyst, Mr David Leslie, said for some of the newly listed stocks, itwould have been ``hard to go too far wrong" this reporting season. ``It's at such an early stagefor a lot of these companies that they are reporting [results] pretty close to prospectusforecasts," he said.

``The ones which have come on since December have mainly been traded on their announcementsand 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 thepotential for a revenue stream, than with profits. Demonstrating the current fickle sentimentsurrounding tech stocks, an Internet researcher with van Eyk Research, Mr Rob Prugue, relates thestory 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 thathis 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, ifyou 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 stockswhich did not perform rather than ``buying everything, as was the case about two months ago". He saidthat of the 36 companies in the tech index, disappointing financial results had seen the share price ofsix 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 thetech 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 expectationsthis reporting season. Open Telecommunications, Ci Technologies and Cochlear were in line withexpectations, he said.