Peter Griffin: It's a precarious way to make money in the market

COMMENT

If you're still a shareholder in an IT company listed on the NZX, you have the perseverance of an Olympic long-distance runner.

There are tens of thousands of you, and most of you will be down on your initial investment unless you got lucky, got some good information or read the market well, bought in the troughs and made opportunistic gains.

IT stocks are incredibly volatile - a company announcement can have a dramatic effect - up or down - on the share price.

Look at communications contractor GDC. Its share price fell 59 per cent the day Telecom dumped it as one of its field contractors.

In general, you'll still be hanging in there after several years of watching your portfolio erode, hoping that one day, a dividend will come your way and the share price will rise again.

The good news is that our listed technology stocks aren't bleeding huge amounts of cash any more - the broom has swept clear the dotcom wreckage.

But with a few exceptions, listed IT stocks still have a long, steady climb ahead of them, and few have the global growth prospects of a Navman or Tait Electronics.

Telecom, Telstra and iiNet aside, 15 technology and telecoms stocks are listed on the NZX and NZAX (alternative exchange) with a combined market capitalisation of around $420 million.

In the last reported full year results all the companies combined made a collective profit of around $9.7 million.

Only three paid a dividend - computer maker Apple's distributor Renaissance paid 3c a share, toll-free calling services and Ericsson phone systems reseller Zintel paid 2.3c and mobile radio operator Teamtalk paid 7.5c for the six months to December 31.

NZAX-listed Zintel is one of the largest companies by market capitalisation, worth $72.3 million.

In May, it reported a $6.3 million profit, up 25 per cent on the previous year.

Motor and electronics maker Wellington Drive is worth $74.2 million but lost $2.9 million in its last full-year result. Shareholders are still awaiting the first profit.

Provenco ($59 million) and Teamtalk ($51.4 million) are the other large companies by market capitalisation.

Provenco finished the year to June 30 with a profit of $4.2 million, but disappointed the market by not paying a dividend.

These companies' listings give them reasonable scope for raising money through share offers, but one wonders if there's any real value in the rest of the IT stocks being listed.

There's oodles of cash sitting around in the form of private equity, if only people would spend it.

I bet a few of these tech companies would be further ahead today if they'd been able to tap a few private investors rather than being distracted with the house-keeping of being listed.

Software of Excellence's chief executive Paul Weatherly said recently that the company's stock market experience had led him to question whether it was all worth it.

He said SOE had received a major boost in chasing overseas acquisitions in the dental software market because its competitors were usually part of listed companies and therefore their financial details were fully disclosed.

But SOE's competitors can also pore over the figures in these days of continuous disclosure.

So what kind or relationship are the exchange and tech companies likely to have?

More activity seems to be going on in earlier stage funding in the venture capital space through the likes of the Government's Venture Investment Fund.

And the appetite for sizeable private investments in IT seems to be improving - I-cap put $35 million into Woosh Wireless this year.

Are there any likely listing candidates left? Maybe a couple.

Electronics company Rakon is a possible candidate as its shareholders look to sell down.

Woosh has suggested it may list early next year. The brokers have certainly been doing the numbers on the wireless broadband provider.

Woosh's heavyweight investors - Stephen Tindall, Craig Heatley and Todd Capital among them - will certainly want to get something back on their sizeable investments.

From the punter's point of view, the volatility of IT stocks means it is always worthwhile having a bit of tech in the mix.

If you'd picked up Zintel stock at the start of the year when the share price was around $1, you'd be up about 45c a share now.

There are niche opportunities like that for those who understand the markets these players dabble in.

But if you're risk averse and interested in technology and telecoms, you are best to put your money into boring, solid earners like Telecom or Telstra - those two continue to make huge profits and pay a high percentage of earnings in dividends.

There'll be no sudden spikes tripling the value of your stock but at least the dividend slips will keep coming.

* Email Peter Griffin