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Opinion This article first appeared in October 1998 "The price at which Computacenter shares were floated in May looks more disturbing by the day," thunders Tempus in The Times. Tempus blames investors for chasing up the 670p share issue. And he (she?) acknowledges that five months later the equity markets and IT valuation criteria are different - that is, much less favourable than in May. But central to the misjudgement about Computacenter was the "underestimation of the importance to its business of distributing computer hardware and the failure to appreciate the price of PCs was so precarious". Ain't hindsight a wonderful thing? These comments would have been more helpful if they had been made in, say, April. Standing at 442.5p on close of play, 5 October, Computacenter's share price represents 18 times forecast earnings. According to Tempus, this begins to look like 'reasonable value', while warning that 'wider equity market problems and anti-IT sentiment are likely to undermine the shares'. So what are we to make of Morse, the highly regarded Sun reseller, which has pulled its - never publicly confirmed - flotation, The Sunday Times revealed last week. In July, paper reported that Morse was preparing a £600 million IPO, valuing the company at 13 times more than its £46 million MBO less than three years earlier. Morse was forecasting sales of £200 million for this year, valuing the company at three times turnover. Profit for the year to 30 June 1997 was £15.6 million on #133 million turnover. Throw in a £600 million valuation and you get a pre-tax multiple of 40. This is madness, as I said in July. Morse intends to get away an IPO next year when market conditions are hopefully better. But its chance of getting £600 million must rank somewhere south of zero. Computacenter is worth £600 million - and maybe a few pennies more. Pre-float, Investors Chronicle criticised the company's advisers for restricting the share issue to institutional funds. The issue could have been a triumph for popular capitalism, the magazine argued. Popular capitalism is all well and good in a raging bull market - or with utility privatisation stocks, where the government sweetens the issues with hefty Sid-friendly discounts. But it has no place in a high-risk, low margin, volume-driven business such as computer reselling. Computacenter was right to restrict its pitch to the institutions. By floating, the reseller created a clutch of employee millionaires, shelled out millions of pounds to City advisors, created liquidity for shareholders. And it established a high water mark for computer reseller valuations. The Computacenter flotation was an enormous success. So what if it's been downhill since then? Computacenter is no fly-by-night company and its institutional shareholders are grown-ups. And after all, what goes down can always go up. ®

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