The Investment Column: Tighter corporate rules in US help Autonomy progress
Premier Oil; SMC Group
Edited by James Daley
Published: 26 January 2007
Our view: Buy
Share price: 581.5p (+4.5p)
Autonomy had a stellar year in 2006. The internet software company's fourth-quarter results beat market expectations after it signed seven deals worth over $1m during the period. Revenue for the year exceeded $250m compared to $90m in 2005 whilst pre-tax profit more than tripled to $69m. The progress has not gone unnoticed, with Autonomy's shares gaining nearly 40 per cent over the year, which values the technology stalwart at over £1bn.
Autonomy's context-based search software has become the industry standard after its acquisition of key rival Verity last year. The software allows Autonomy's customers to use the vast swathes of dormant data trapped in their servers and data centres for numerous applications from counter-terrorism to tracking customer trends.
Tighter US corporate disclosure regulations have helped drive Autonomy's progress over recent years. It is now set to benefit from updated civil procedure laws that require companies to maintain and track all electronic communications, including e-mail and voice calls. If the company is sued, it must hand over all the relevant data within 90 days.
Autonomy's 2004 acquisition of Virage, a video search technology company, has also proved astute. Virage powers China's largest video site, blinkx, which has already started generating revenue. The stunning success of YouTube has illustrated the popularity of online video if the content is appealing. blinkx has won the exclusive internet rights to show China's New Year celebrations, which typically attracts 700 million viewers, and is certain to boost its subscriber numbers. Autonomy, which owns a stake in blinkx, is keen to roll the model out into other emerging markets like India, as the online video phenomena gains pace. So far, it's been hampered by a lack of content partners.
Autonomy trades on a hefty valuation of 31 times 2007 market forecasts that may lead some investors to consider taking profits after a bumper year. Yet with the company building up a head of steam as it enters 2007, there should be more value ahead. Buy.
Premier Oil
Our view: Buy
Share price: 1,141p (-9p)
Premier Oil is one of the biggest independent exploration and production groups on the London market. On the evidence of yesterday's trading update, it is doing well and is positioning itself for an even brighter future.
The company announced two deals, worth $96m (£49m), and an update on production and exploration news were all positive. Premier spent $36m buying a further 25 per cent interest in Block A in North Sumatra, taking its stake to 42 per cent. And it purchased a 20 per cent stake in the Scott field in the UK North Sea for $66m. Scott adds 4,000 barrels a day of production to the group and the combined price of $2.4 per barrel for the two acquisitions is considered attractive.
Premier will also be drilling 17 exploration wells during this year, which is one of the most aggressive programmes among its peers. Seven of these wells are considered high impact - that is, their results could significantly impact the share price. This programme has the potential to "provide a step change in the outlook" for the company, according to broker Teather & Greenwood.
The company also announced exploration success, with its Dua and Blackbird prospects in Vietnam and three discoveries in Indonesia. Production rates at the end of 2006 were 4 per cent up on the previous year at 34,400 barrels. The company sees that accelerating to 40,000 barrels.
Late last year Premier was in bid talks - reportedly with Dubai energy - but these discussions were unsuccessful. Whether or not the company is bought, its exciting exploration offers upside for the shares regardless of the recent falls in the oil price. Buy.
SMC Group
Our view: Buy
Share price: 131.5p (-59.5p)
Investors in the architect group SMC couldn't get shot of the stock quick enough yesterday, helping the company's share price graph for the past 12 months to resemble one of its more avant-garde buildings. Having almost quadrupled since it listed on AIM 18 months ago, the shares nosedived more than 30 per cent, after the management revealed its decision to adopt a more conservative way of accounting for its work in progress. As a result, its profits for 2006 are set to come in almost £2m below the £7m forecast by its house broker Numis.
Although it's perhaps no surprise that the shares reacted in the way they did, it's worth remembering that yesterday's news had no bearing on the group's future prospects. Having made a series of acquisitions last year, SMC is the largest firm of architects in Scotland, and one of the largest in the UK. SMC still has an excellent franchise. Furthermore, after yesterday's share price falls, it trades on less than 10 times this year's forecast earnings. Buy.
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