Analysts wary as share price soars

By Mark Reynolds

Shares in technology group Advantage soared to 300c yesterday on the back of a tip by company executives that full-year profit forecasts would be exceeded.

Investors were also encouraged by the approval of a series of expansionary investments and share issues by the company.

But some analysts suggested the share price is getting a bit ahead of itself. They said that while Advantage had a good financial turnaround and growth story to tell, it had to get a few more runs on the board to justify such a high price.

At 300c, Advantage's price to earnings ratio has moved above 40, compared with an average of 12 for all listed companies.

"It's in a glamorous sector where there is potential for much higher growth than the majority of listed companies, but even so it is getting a bit difficult to justify," said one analyst, who requested anonymity.

"They are likely to retain earnings and perhaps issue new shares for further acquisitions, so there will be no dividend and the potential for dilution of stock."

The rapid rise came after Advantage chief financial officer Bryan Stanton told shareholders at a special meeting that the company was confident of exceeding earnings forecasts for its financial year.

That profit had previously been forecast at $3.1 million on revenues of $20.4 million, compared with a year-earlier loss of $8.4 million - which included some big one-time restructuring costs. The meeting had been called to approve the purchase of new operations including barcode scanning group Computer Enhancements and automated software group PEC Retail Solutions.

Shareholders also gave Advantage executives authority to issue up to 10 million new shares - which they are likely to do to fund further acquisitions.

Chairman Evan Christian said that after acquisitions, the company would have gross assets of $28 million, including goodwill and intangibles of $12 million.

On the other side of its accounts would be a $10 million delayed payment on the PEC purchase, $6 million of interest-bearing debt, $3 million of trade payables and $9 million of shareholders' funds.

That for a company which the market is now valuing at nearly $130 million.

Mr Christian owns 38 per cent of the company in association with fellow director Nick Gordon. The stake is held through Wiltshire Technology Holdings.

Wiltshire previously held just over 41 per cent of the company, but that stake has just been reduced after Wiltshire transferred some shares to a private company of Mr Gordon's in repayment of a loan.

When Wiltshire took a controlling stake about a year ago, the whole of Advantage was valued by the market at $4 million. That is almost the value of the small stake that has just been transferred by Wiltshire to Mr Gordon.