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Record highs

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SHYesterday, the FTSE100 closed at 6840 – only 90 points below its all time high achieved at the end of Dec 1999. But overnight news from the US, Japan and China might well have put a stop to the party as, as I write this post, the FTSE100 has fallen by 110 points (1.6%) at the open.

The event made me reach for my archive copies of System House that Richard Holway Ltd published from 1988. The Jan 2000 edition had one of its most ‘famous’ front page headlines ‘The Emperor's New Clothes” in which I exposed the quite crazy valuations which not just internet, but all tech, stocks had reached. In hindsight, predicting a crash looks easy but I got a lot of stick at the time and, indeed, the tech market continued to rise until Apr 6th 2000 when the bubble finally burst.

In the 13+ years since, the FTSE100 has dived by 50% before recovering to its current level. But tech has not. The TechMark100 index was 3779 on 31st Dec 99 but is still ‘only’ 2932 today. The FTSE SCS Index was 4303 on 31st Dec 99 – and actually went on to hit a high of 4950 before the crash. The FTSE SCS Index is just 1210 now.   

The best performing SCS shares of 1999 included Baltimore, Rage, Torex, AIT– indeed a whole list of companies where you would have, for all intents, lost everything. Over 90% of the listed SCS companies in 1999 are listed no more. Most were rescued at ‘garage sale prices’ or acquired by foreign predators. Even the big SCS companies that survived are still showing a loss today. For example, Sage closed 1999 at £7.56 – they are still only £3.61 today. Computacenter was £10.18 – they are under half that now. I could go on with Microgen, RM and other ‘survivors’.

The average P/E for listed SCS companies in Dec 1999 was 60!

There is, however, just one company that we follow (but wasn’t in the FTSE SCS Index in 1999 or today) that is higher today - and that is Capita. Capita’s share price was £3.76 on 31st Dec 99 but is nearly three times higher at £10.16 today. I well remember Paul Pindar telling me in 1999 that he had no desire to be reclassified into the IT Index. How right he was!

Emperors New Clothes déjà vu? In the internet bubble EVERY tech stock ‘benefited’ as in ‘a rising tide lifts all ships’. The current crazy valuations are reserved only for social media companies and the like (Facebook, Tumblr etc) I’ve long prophesised a bursting of that bubble! But almost all of the established larger players in the sector are within ‘sensible’ valuation parameters. Indeed most are now profitable and highly cash generative. It’s just that their growth prospects are now severely limited.


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