Online growth for traditional media

Johnston Press's trading update shows local ads more or less flatlining, with some decreases in the rate of decline - not a great advertisement for the local press, but reasonably robust, certainly when compared to TV ad performance.

But the group managed a 35 percent increase in online ads. Still a small part of the total - but growing very strongly. And this is from a traditional media player which, actually, I don't rate all that highly on its web sites - a follower rather than a leader (where say the Manchester Evening News is a real innovator).

Some investors have been complaining that whereas Trinity Mirror has been buying up advertising websites, Johnston Press has kept its powder dry. Actually I'm not sure that's a bad thing. The risk with the Trinity Mirror deal is that it will end up sending all the ad business to the property sites, draining its local paper websites of revenue. (And that's apart from the risk of overpaying.)

So JP still looks quite attractively valued. But from the statement, it looks as if it's still been getting growth from property ads - which I'd expect to do much worse next year. So you ought still to price in a decline in earnings for the next financial year.

Property madness?

Trinity Mirror has just bought Globespan - publisher of property information including homesoverseas.

It continues a string of purchases which entended TM's footprint in the property market. That isn't a bad strategy in itself - instead of allowing online media and magazines to take advertising away from the newspapers, TM has bought into the expanding property media universe.

But it's the timing which is breathtakingly awful. The day after the Nationwide index shows a fall in UK property prices - and shortly after DMGT says property ads are sagging - TM puts even more money into the property market.

If I were one of the selling shareholders of Globespan I'd be feeling very happy. And I probably won't be buying Trinity Mirror shares.

Daily Mail as property indicator

The Daily Mail finally said yesterday what I've been waiting to hear for a while; property advertising is starting to flag.

Property ads have been one of the strongest areas for many papers, both national and regional, till recently. But it looks as if mortgage rate rises, the Northern Rock debacle and high price levels are having their effect. There's less volume - this has been confirmed to me by several agents - and agencies are now looking to reduce their advertising budgets.

Which makes Rightmove look very vulnerable. Despite a recent fall, the stock is still trading where it was in February this year. But if newspapers are feeling the pinch now, Rightmove will certainly feel it within the next six months. And with a PER of 54x according to DigitalLook's consensus forecasts, it's far higher rated than the newspaper stocks which trade around 10-15x earnings. Yet unlike the newspapers it has no other advertising areas to prop up its profits. Time to short it perhaps?

Reading the omens

I'm a great believer in entrails, triskaidekaphobia, not treading on the cracks in the pavement, the significance of the flight of vultures across different sectors of the sky, all kinds of nasty superstitious stuff...

Well, I do read omens. It's what analysts are trained to do.

Omen of a fall in the residential property market; developers promise to pay your mortgage.

It's happening again. I saw two separate offers last week. Very nice. Last time this happened was while Docklands property was in free fall, late 1980s and early 1990s.

Mortgage paid for two years; effectively a 10-20% cut in price, no?

Property disconnect

I keep reading in the consumer press that house prices are going up. Not as fast as they did, but still up. (The fact that predictions of 1-2% price growth are now way below inflation, so you would be better off hoarding baked beans than buying a house, seems to have escaped many commentators.)

But the stock market is telling me a different story. First off, Humberts - which has just had a profit warning. Not unexpected if you look at the continuous decline in the share price since May.

(A chat with a chum in the sector confirms that while April was a record month, May saw the beginning of decline, with Home Information Packs and interest rate hikes giving agents a negative double whammy.)

And the commercial property sector is down nearly 30% over the the past six months. I suspect that because it attracts a slightly more educated investor - put it this way, most people don't buy their own offices so they have no emotional attachment to the market - it may be reflecting the credit crunch rather more quickly than the residential sector.

I still think it will take two or three years for the residential market to fall off definitely. But if my reading is right, some time in 2010 I'll probably buy my first new repossession. And it will be either a north Norwich two-up two-down terrace (put it this way, I've done all right on the first one!) or one of the ritzy new flats and townhouses along the Wensum, probably from a buy-to-let investor gone wrong.

another website whinge

I was reading an article today on the Times website and noticed something rather odd. Every time there is meant to be a dash, there's a question mark. I know this is something to do with character encoding - in html you need to use — or – (depending on the length of the dash) to ensure correct display.

But surely, the Times ought to be able to get this right? Don't they have any subs? Don't they have anyone with the most basic knowledge of web design?

It looks as if they are simply copying journalist's word files straight into the content management system without checking for non-html compliant characters. Silly.

On another note, time for a whinge about a PR company that today sent me a press release that didn't tell me the name of the company issuing it, and simply said 'Please read the attached'.

The only other people who do this besides PR companies are, well, spammers, and lovely people whose uncle's million pounds is looking for a home in my bank account, just as long as I give them my PIN number. Sorry, nice Financial PR people, this release went right in the bin.

Getting the basics right online

I am trying to load a finance story from the Independent.

It's been trying to open in the browser for about twenty minutes now.

Twenty minutes is a long time. Famously, Jakob Nielsen reckons most web users click away in eight seconds. It would take me two minutes to go to the newsagent, one minute to buy the paper, another two to walk back - I'd have the story in less than half the time it takes on the web!

Ah, it's just opened :-)

I've done a number of stories about online strategies for InCirculation, focused on issues such as the symbiotic (or competitive?) relationship between newspapers and search engines; syndication; magazine subscriptions online; and digital editions. But I've never talked about getting your bandwidth right, getting decent server software, achieving reasonable page download speeds. Because I didn't think I had to.

Maybe I do.

In fact the Independent was one of the early greats among internet newspapers. It's still got editorial content that makes me want to visit it first or second every morning. But if it's not going to get the basics right, all that effort goes for nothing. And even though I know I want the content, I note a marked disinclination in my mouse finger to click on the bookmark...

End of the bid premium?

I really couldn't believe it earlier this year when two of my stocks, Xansa and IXE, got taken out at massive premia to my buy-in price, making me a fat profit.

Groupe Steria bought Xansa at a premium of 70% to the previous day's closing price; Equinix, originally offering a 50% premium to the share price, increased its offer further (to 67% more than the average share price in the three months prior to the offer).

It looks as if the level of enthusiasm displayed in the middle of the year has disappeared judging from recent bids. Both Red Squared and Telent look to have fallen to bids that offer less than a 20% premium.

So once again it does look as if the cold water thrown on the markets by the credit crunch has affected equity valuations. Anyone still believing that bids will rid them of their poorer performers... get out now!

SaaS - best business model!

I had an interesting chat today with Servicepower (SVR), whose software is used to manage field engineers and other mobile workers.

Servicepower has moved from an initial licence fee model to Software as a Service (Saas). Although obviously that introduces the frightening prospect of cannibalisation of revenues in the short term (because you're taking say £35k a year for three years instead of £100k all at once on an ILF basis), it's working out nicely for them. The recurring revenue run rate already covers 85 percent of forecasts for the year. That's good quality - most of the contracts are for three years, a couple for longer terms.

But there's another big benefit they're seeing from SaaS. The sales cycle has accelerated. (A historical perspective; sales cycled lengthened dramatically during the tech crash from 2001 to 2003 - and although the sector has seen good growth since then, the sales cycle itself hasn't got any shorter at most software firms still dependent on initial licences.)

One client apparently wanted to run a six month pilot of Servicepower software followed by several months of evaluation and several more of contract negotiation. Instead, SVR suggested a quick SaaS rollout. Result: sales cycle reduced from twelve months to three.

SaaS also forces software vendors to create software that can be deployed rapidly, since it is web native and uses open standards. Atlantic Global (project management software) recently managed a nine day go-live - remarkable for any ERP software. Not all implementations will be as fast, since customisation may still be required - but the onus is on anyone who still needs six months to roll out a piece of software to show why it is worthwhile.

Perceptions of danger

The Northern Rock disaster is fascinating. Here's a business that managed to borrow from the Bank of England - admittedly at poor rates - and that, it turns out, had two potential acquirors talking to it. Here, too, is a regulatory system that repays almost all a saver's first £35k of deposits in any bank. And people are queuing to take their money out.

What is intriguing is that brokers might actually be safer for larger savers than banks - simply because funds are held in segregated client accounts. That won't help against fraud, but should enable investors to reclaim funds in the case of collapse. Besides, the compensation limit is higher (£48,000 instead of £35,000).

Pensions, widely distrusted by retail customers, are safer still, with no unlimit on the amount of compensation (90% of total invested).

So the 'safe as houses' bank or building society could, in fact, be riskier than equity investment. Interesting.

Where Northern Rock will have a major impact is in the availability of funds to the property market. The Rock had invested heavily in growing its mortgage book - one reason it needed to borrow on the financial markets rather than using savers' deposits to fund its lending. By mid 2007 it was writing a fifth of new mortgage business in the UK.

Now, it looks as if Northern Rock will practically be closed to new business. That's a 2o percent fall in mortage availability. Never mind what rates these mortgages may or may not be available at - credit quality will have to be increased to ration funds.

And with the markets as they are now, it will be a brave bank that aims to grab the Rock's 20% market share.

Economic literacy

ITV is struggling against the CRR - the mechanism which regulates its advertising prices. True, it's facing the situation which BT watchers will recognise - being regulated as a dominant player while having lost the market share which made it dominant.

But one line in the Guardian report made me sit up. It said that ITV wants to increase its prices to make up for shrinking audiences.

Er... hang on. The value of TV advertising is entirely based on how many people get to see it. So what ITV seems to be saying is; our product is now worth less than it used to be, so we think you should be paying us more.

That's so economically illiterate it really took my breath away for a moment.

Little fleas

When I'm short of inspiration I look in my old copy of 'Verse and Worse' or one of my selections of Ogden Nash. Here goes:

little fleas have littler fleas
upon their backs to bite ‘em
and littler fleas have littler fleas
and so ad infinitum.

What's the relevance of this to IT investing?

Well, I was speaking to nCipher today, and it looks like they're becoming one of the littler fleas. They specialise in data security and encryption, and they are now finding that they can work very nicely together with the big consultancy firms. The big firms know they need to address their clients' security needs - but have no expertise in encryption. So nCipher is jumping in there, as a 'flea' on their host so to speak.

However, that's only part of their business. (They're doing well, incidentally - back in profit after a rocky passsage through the past couple of years, seeing revenues growing at 15.5% and getting some superb cash flow.)

I automatically thought of another 'flea' I've seen in the past - Ixos, a document management firm that had piggybacked its way to profitability on the back of SAP. And SAP, like a good big hedgehog, didn't mind IXOS hanging on its prickles - in fact it helped the smaller company with its marketing and expanded the cooperation into CRM as well as DM. Ixos was on Neuer Markt when I got to know it, but it was acquired by OpenText back in 2003.

So I'm going to go around and have a look for some more 'fleas'. I think it's a strategy more and more firms will be using in future. And it obviously can work pretty well.

SQS

I identified SQS as a stock to watch about a year ago. Today they came out with bumper interim results, a statement that they would comfortably beat full year market estimates, and an improved balance sheet too.

They're the leading specialist providing software testing. This market's growing ahead of software in general, with several drivers; M&A (where systems need to be integrated), new software spending, web functionality needing to be built into business systems, and compliance. 25% organic revenue growth isn't too dusty - five times the industry average. And with a 20% rise in the number of new clients being acquired, the company is establishing a great pipeline to keep growth motoring over the next 18 months.

Gross margin was up despite expansion - unusual in the computer services sector. They've had the benefit of a price rise (5% in the UK) but even so, they must be managing their new hires pretty tightly to get such a good result.

What I really like, though, is that the quality of deals is also improving, with more long term contracts. Not only that, but the company is being hired earlier in projects - testing all the way through, and becoming an integral part of the project, rather than just being brought in at the end. It's like the difference between internal audit and year end financial audit. (Although if external auditors think they're unpopular, they should just try doing an internal audit job - nobody loves internal auditors, not even their finance directors.)

SQS also shone light on the way offshoring is working for them. It's not an either/or decision for SQS's customers. They start off with the majority of the work being done on site; but as the relationship becomes deeper, and as the project matures, more work can be offshored - moving up to 50 percent within a year or two, and probably 70 percent of the work after three years. That's very different from the way most people think about offshoring - "sack all your staff and set the call centre up in Delhi instead." (Offshore firms like Wipro have some big PR they need to do in the UK.)

I have looked hard at the SQS account because something has got to be wrong, hasn't it? These results are too good to be true... except they are true. And I can't see anything wrong with them!

Bricks 0, Clicks 1

Choices UK is finally going into administration. It's had terrible results for the last few years - in fact it's been downhill all the way since 2004 for the share price.

Now we're left with almost no music/entertainment chains on the high street. A number of other chains have gone, as well, and DVD rental stores are closing down everywhere.

While media sales are up, people are choosing to buy them through alternative channels. Mail order, mainly through online stores, has taken over the market, and with a number of ISPs now starting to offer online downloads, the high street has lost its raison d'etre.

Besides, the new business model offers a white label opportunity. LoveFilm, the leader, also supplies services to the Guardian, Tesco and WH Smith - reducing its marketing cost while vastly increasing its addressable market. Next to this, buying a shop and advertising the retail brand is a needlessly wasteful business model.

So it's hardly surprising Choices UK has found the going tough. The question that really needs asking, though, is why Choices couldn't see the writing on the wall - and get into the growth areas.

It seems to have defined itself as a high street retailer first, and a media channel second. Which meant that the internet, for Choices UK, was always a secondary concern - instead of the vital strategic option it should have been.

Entertainment obviously has a particular vulnerability since the product can be digitised. But I wonder whether we will see online sales really putting the squeeze on the high street - particularly if consumer spending slows further - in other product areas too.

LoveFilm / whitelabel

The 'investment' that makes no money

Fascinating research from the Money Centre shows that over 40 percent of buy-to-let landlords do not expect their rent to provide any profit once they have covered mortgage costs. This is well up from 19 percent last time the Money Centre ran its survey.

It intrigues me, because property has traditionally been an investment valued primarily on yield and intended to produce a regular, predictable stream of income. However, these landlords will only make money if property prices continue to rise - or if rental levels increase. Property has moved from income investment to growth investment over the course of the last few years.

Now the last investment I remember that did that was BT. Traditionally a stock yielding 4-6 percent, the tech boom saw its rerated as a growth share. Now, it's back in income stock territory.

Will the same happen to property investment?

Gradual decline vs free fall

An interesting comment with the Archant results yesterday. (For those who don't know it, Archant is the private group which evolved from Eastern Counties Newspapers into a much larger local newspaper and magazine business.)

John Fry, the chairman, compared the flat to slightly declining circulation of evening papers to much steeper declines in BBC and ITV viewing.

Now that's interesting, because we have the idea of local newspapers (indeed newspapers in general) being in endemic decline. Circulations keep falling and have been doing so for years.

But local newspapers are used to it. Most of them are incredibly stingy operations; costs are tightly controlled. And there are lots of games you can play at the margin - promotions, new points of sale - to get circulation to level off.

Television isn't used to it. Television was growth until, what, five years ago? And the major channels are still trying to cope with the erosion of their viewer share by the multichannel universe.

Besides, local paper groups are finding strategies that enable them to grow. At Archant, investment has been directed to the magazines and the websites, and it seems to be working.

Now this has made me look again at Johnston Press. The shares have collapsed since April - from 490p to 383p - and they're now trading at only ten times earnings. Plus you get a well covered dividend at 2.7% - not huge, but certainly a consideration. I just wonder whether it might be time to reconsider this stock...

I-player

Fantastic news! The BBC has just reinvented the wheel!

I was expecting more from iplayer. First of all it would have been nice to have a platform independent player for those of us who have adopted open standards or non-Microsoft media players, or have Macs, or have different versions of Windows from the ones adopted by the Beeb...or Vista, either. So that's a PITA.

Secondly, where's the content? Basically this lets me watch some of last week's television. No archives, no clips. Limited searchability. I get a lot more out of Youtube. No user interactivity, no uploads, no web 2.0 functionality.

This really looks to me like just another media player, only it accesses a limited pool of content and allows the BBC to control its digital rights. In other words, it's been produced to suit a producer agenda - not a consumer agenda.

Imagine if I have to download separate software for each station I want to watch on my PC. So I'll have iplayer, ITVplayer, Skyplayer, Stripping Housewives Player, and FourPlay. :-)

I really think this is not going to catch on... but it may take quite a while to die.

(And yes, I know C4 called their player 4oD.... but the joke was too good to resist)

Worrying trend

According to a Motley Fool survey a third of UK residents plan to use their homes to fund a pension, whether through a sale or equity release.

I find that distinctly worrying, for a number of reasons.

- It shows an obvious mistrust by consumers of the stock market and of pension schemes. That's something that needs addressing if the savings ratio is ever going to improve - and it's at very low levels right now (which I bet will decrease as interest rate hikes bite into disposable income).

- These people seem to be assuming that the housing market will continue to see price inflation at the same levels experienced in the past four or five years. Never a safe assumption.

- It suggests that one third of UK housing stock is now seen as investment property - and at some point will effectively be up for sale to fund a pension.

- And it also suggests that other than their houses, these respondents to the survey don't have any significant savings to support themselves.

Let's get our terminology right

I just received a message addressed to "all house owners".

Yes, I own a house. So I read on.

"How to reduce your mortgage now that interest rates are going up."

I repeat, I own a house. I actually own it outright. I owe no money on it. It is not rented, equity released, hire purchased, leased, or mortgaged. Owning a house does not mean you have a mortgage.

Now this imprecision annoys me. Okay, we can probably assume that most house owners in the UK do in fact have a mortgage, and that's obviously what the marketers were relying on.

But at a deeper level, there's an equation of ownership with debt which is actually quite worrying. And I notice in a lot of media reporting that higher interest rates are judged to be bad for individuals because they increase mortgage rates.

Hang on; some of us have savings. So interest rates going up should be a cause for celebration. If interest rates double, I'll be getting a reasonable return from my savings accounts - though my equity portfolio might be buggered... But this aspect seems rarely to be reported with much glee - it's the mortgage aspect that hits the headlines.

Which rather reflects, I think, the problem that we currently have; easy borrowing and excess liquidity have driven up asset prices, but left us with a huge backlog of debt and massive gearing against the market. Debt has become normalised (and student loans have a bit to do with that, too; if you start your working life already thirty grand in debt, do you ever see yourself getting more assets than debt, other than by house price inflation?)

So let's have a bit more precision in our use of language, and make sure that we specify 'house owner' as someone who owns a house, and 'mortgagor' as someone who owes money on a mortgage. The two are not and ought not to be synonymous!

Excreta and extractors - the beginning

Sub prime and hedge fund chaos has now hit the "real world". And in the UK, too - not the US where the canker started. My betting is that this means the beginning of a market decline. We've already been through the 'nervous' stage earlier this year - and managed to avoid a permanent market decline; but this time I suspect it's for real.

* Mitchells & Butler has decided not to split off its properties. So the corporate strategy of a major pub company is now being affected by market movements... In fact they appear to have found it impossible to secure debt funding for the deal. Now M&B is not some fly by night asset stripper or dodgy start-up; it's pretty blue chip. That suggests a sudden and very marked increase in lenders' risk aversion.

* UK commercial property funds are hitting real trouble. It was obvious as much as six months ago that with commercial property yields lower than interest rates on the best savings accounts, something was going to have to give. The question was when, and how. Imposing penalties on withdrawal of funds is a drastic move. (Meanwhile the quoted property sector has fallen pretty consistently over the past six months, and yet still the majors are offering yields of only 2 or 3 percent. If there's no room for capital appreciation, then the yields ought to equate to cash yields - or even above, given the risk of falls in the price of the underlying assets; but that's still not happened. So I'm not getting suckered into any dead cat bounce.)

* One blessing is that the high rate of corporate activity has reflated the cash position of my portfolio and I imagine leaves many fund managers also relatively cashed up. But whether that cash is headed back into the market I don't know. Right now, I suspect not.

So what to do about it? Holding cash has become more attractive now that interest rates have risen. Oil stocks and to a lesser extent mining stocks still appear attractive particularly with oil prices at USD 78 or thereabouts. And tech and pharmaceuticals might be worth investigating; there are some low valuations and good growth stories, though there has also been an increasing number of profit warnings. As for property, I'm almost completely out of it - though Pactolus (Hungary) and Trinity Capital (India) might be interesting, and trade on good yields with in Trinity's case a massive discount to asset value - and certainly, I'm out of property and out of asset plays in the US and Europe.

The real conundrum is what on earth is going on in the UK residential market, with successive interest rate rises surely putting the squeeze on many mortgaged owners, and yet the Halifax reporting house price inflation rising. The sums don't work. And I would never have thought that it would be commercial property that would crack first....

Grumpy old media blogger

It seems to be the season of redesigns. After the Times, the Guardian has now redesigned its website - like the Times, making it rather lighter, with more space, and lighter font styles.No lime green, but like the Times it's changed the grid to enable more columns to be carried across the page, separating out the content in different ways. I don't love it... but it is undeniably useful.

This all leaves the Indie looking rather faded. The Indie seems to have decided that Web 2.0 isn't going to happen. It was early into podcasts with a travel series but it seems pretty much to have given up on them.

Attitudes to rich media are odd. For instance the Guardian and Times often run video but they still can't be arsed to put pictures or graphics with many of their articles. A recent article on the Times website about swimsuits had no pics. Fashion without pics? Weird, not wired.

And there is one thing the Times is doing - in fact, doing again - that drives me wild. Load up a page and IT STARTS TO TALK. You are reading, I don't know what, an article about the French parliamentary elections, and suddenly this voice breaks in and says 'I was in Hay-on-Wye the other day and...' or 'Welcome to Washington and Reuters News'.

Now we know, being English, that newspapers are there to discourage talking, that's why they come out in time for your breakfast. :-) Unlike on Youtube, I do not come to the Times for videos, and unlike iTunes I do not come for audio. I come, first and foremost, for news - and I want to be the arbiter of how I use that news. It's a usability issue, but one the Times doesn't care about. They are going to tell me how I need to experience their web site.

Oh dear oh dear. There's a traditional editor in there somewhere who still hasn't understood the meaning of interactivity.

Meanwhile, I'm going to be spending more time on the Telegraph site as my chunk of right-of-centre comment, and be damned to the Times and its talking robot.

Goonervision

It had to come. Arsenal FC has started its own television channel.

We've seen lots of approaches to the task of monetising football. Almost every club has its own web site (though few are as charming as the one for Royale Union Saint-Gilloise, the 'other' Brussels team, which includes a touching little museum of artefacts from the days when they were in the first division). We've seen ITV Digital drop a bundle on televising lower league matches - though this was at least partly due to the fact that they'd paid way over the odds for the content.

But the odd thing is that not that Arsenal are doing this. It's that they've waited so long. Man U set up its own TV channel in 1998; Celtic and Rangers signed a deal with Setanta last year. (That's why Virgin apparently packages Celtic TV and Rangers TV together - not a combination likely to appeal to many Glaswegians.)

But it's not a passport to riches. MUTV has a viewer share of less than 1% with 48,000 viewers. That might work nicely if you were very niche, but MUTV isn't. It's competing with... let's see; BBC1, ITV, Sky Sports... and all the national newspapers...

None the less the fact that these clubs can launch their own TV shows is a confirmation of two great media trends. One, the fact that we're inhabiting a multi channel universe, and channels are becoming more and more focused. (That actually has big implications, which the government typically hasn't realised, for public service broadcasting; the Reithian imperative was created for a media-poor universe, but it's equally important for a universe which is so media rich, so filled with niche, with focus, with partiality, that we need somewhere to have an objective, or at least even-handed (the two are not quite the same) broadcaster.)

And two, the costs of television have come down dramatically. (And indeed of film, as the Blair Witch Project showed. Cannes in a Van continues the trend of stripped-down film making and showing.) There's always been "cheap television" but now, *good* television can be cheap, too.

I do wonder though if the economics really stack up. The worrying thing is that on the numbers I'm seeing for MUTV, I'm not sure they do. And MUTV presumably isn't paying on an arm's length basis for its content.... the message for other broadcasters is stark.

What's with Logica?

Logica's profit warning was entirely unexpected. And yet I can't help thinking it shows some of the weaknesses with consulting businesses.

First of all, a major contract coming to an end - and not being replaced with new business. I'm not sure we ever have particularly good visibility of these contracts - until they don't get renewed. But I can remember two or three profit warnings in the sector that looked pretty similar. And only one (Xansa - when HBOS withdrew from a contract early) was completely unforeseen.

Secondly, a provision for delays on a contract. Okay, that's bad management. But it does happen.

What's good about that, though, is it doesn't seem to show a slowdown in the commercial sector. It just seems to show that Logica has messed things up.

What's more worrying is the statement on public sector business slowing. The software sector has been a big beneficiary of UK government spending over the past few years - and the purse strings may be tightening. I'd guess the same is true of other support services, and I wonder if we'll see further profit warnings from the likes of Capita and Serco.

Intriguingly, outside the UK, everything seems to be going well. So I get a little hunch that picking tech companies with big European operations might be smart. There aren't many of them on the London market - but there are a few. Or you could, I suppose, jump straight into German tech stocks. They're not all as big as SAP...

Public sector software consolidation

Interesting news today that IDOX has acquired Caps Solutions - in fact, a reverse takeover (the CEO of Caps takes over as CEO at IDOX).

Caps always had a huge position in local council planning software, concentrating on geographical information systems - identifying and mapping where things are. IDOX was the new kid on the block, focusing on document and records management rather than 'planning', and started moving into other council services areas too.

So putting the two together could make good sense - though the documentation says nothing any any potential software integration, which I would have thought was the ultimate game plan. Perhaps the two companies need to wait till their CTOs have argued out the issues there... Meanwhile, it gives the joint enterprise a clear lead in functionality and market share over its competitors.

The price doesn't look too high either - 70% of turnover, and 12x earnings (about 8x EBIT, though no EBITDA figure is given) - below the software sector as a whole. Though I notice that despite a 7% increase in revenues last year, Caps turned in a lower profit - if that can be turned round, the acquisition would be a fair bit cheaper.

Strange view of a pre-digital world

I'm doing a bit of research on Financial PR companies at the moment, and one of the sources I've had a look at is Simon Brocklebank-Fowler's preface to Crawfords City Directory, 2007.

He has a lot of good things to say. But I'm afraid he is really living in the past. Here's what he has to say about retail investors' access to information:

"For all their failings, the UK Sunday papers remain surprisingly well informed about Monday announcements, and they provide almost the only source of effectively real time information available to the retail investor, deprived of Bloomberg and RNS."

For a start 'effectively real time' meaning 'something that was published yesterday' is a very odd turn of phrase to anyone who has worked in the IT industry... with a demand for 'real' real time.

But also... well excuse me here, but I thought the internet was now available to ordinary households? I thought you could get broadband for fifteen quid a month - which shouldn't prove an extortionate amount for anyone with a few grand to invest?

Er... Motley Fool? Sharecast? Citywire? Wallstrip (if you're US focused)? ADVFN? Even the Evening Standard now puts its financial scuttlebutt online (and has RSS links, so you don't have to go and look for it) at thisismoney.com. All of these seem to have passed Mr Brocklebank-Fowler by. And I wonder how well he is doing his job as a PR if he doesn't at least check on bulletin board comments from time to time.

Now if I had a good graphic designer here I would draw you two pictures. First, the archetypal private investor of twenty years ago. He's Victor Meldrew - tweed jacket, pipe, and why is he so cross? That's right, he's waiting for the Sunday Telegraph with its share tips, and the paper boy is ten minutes late!

Second, today's retail investor. He's sat in front of the PC, flicking between the Investor's Chronicle website and the ADVFN bulletin board and maybe then tabbing to some trade PR on the company concerned to check out whether this is spin, or maybe worth dropping a few grand into.

And why is he so cross? Oh yes, he can access his bank account online - and he's overdrawn :-)

Devolution for London?

I'm getting increasingly concerned that the house price indices aren't showing us any useful information.

The last four or five issues from several of the index-makers contain the statement that the average national house price has been driven upwards by a strong performance in the London market - particularly at the top end of that market.

I suspect that you would get very different trends if you took one of two alternative approaches.

First of all, you could simply leave London out of the indices and look at 'UK ex London'. Of course you'd need to define 'London' - inside the M25? a given number of boroughs? But that might deliver news of more interest to people living elsewhere in the country.

(In fact, the ODPM index, because it is expenditure-weighted, actually gives more rather than less importance to the south-east and London figures. So it's the reverse of what I'd call useful for the nation as a whole. RightMove is also expenditure-weighted.)

Or secondly, you could leave out houses above a certain amount as atypical. Now that is a bit of a judgmental fix-up of course - but it would give a more useful answer on bog standard properties.

But actually the third approach you could take wouldn't involve any omissions. You could simply use a median rather than a mean price as your average. As far as I'm aware, none of the current indices are doing this (though the Halifax and Nationwide assess the price of a 'typical house' - which probably does help, though apparently the Halifax hasn't updated its idea of a typical house since 1983...)

But perhaps we do need to devolve London as far as house prices are concerned.

By the way, there's some good stuff on Home.co.uk for stats nerds on the indices and how they are constructed.

Resale value versus intrinsic value

Merger mania seem to have hit the stock market. Every day I hear of a new private equity story, a new MBO story or a sector consolidation trend.

I wonder increasingly whether valuations can be sustained on this basis. The market now appears to be valuing stocks on their resale value to a trade buyer - that is, pricing in efficiencies and synergies that will only ever occur if a bid is made - rather than on their intrinsic value as free-standing businesses.

Now that rather reminds me of the property market. I made enquiries about a couple of houses recently. Almost the first thing I was told by the agents was that it would be a good investment because I could sell it again for far more than I paid for it. (Seems to me they are assuming I'm not going to try to flip it...)

Excuse me? I don't walk into Tesco's and get told to buy the ready Lasagne because I'll be able to sell it for 5p more than I paid. I'm looking for a house. ie, somewhere to live. I am worried about things like its council tax band, how much space it has, energy efficiency, whether it's got a cat flap. I'm not thinking about selling it.

So why are they telling me first and foremost about the investment value?

Of course intrinsic value is a concept with a long and fraught history. How exactly you calculate it is tricky to say. But I do feel that this market in both equity and property has gone too far towards hoping for large capital returns and too far away from calculating earnings and rental yields. Which, after all, are what really drive the price for most stocks and houses.

Consumer resistance?

We're used to queues outside game shops, pre-ordering, massive crowds all trying to get the latest console. The Nintendo wii was no exception despite its name.

But the new Playstation 3 just doesn't seem to have inspired this excitement. Why?

Well, partly, I think, lack of backwards compatibility. You're not going to be able to play all your PS2 games on the PS3 and that has taken the shine off the console.

And also, it's the wrong time of year. Without the Christmas rush, there's less urgency to the release. Besides, many people are probably still stuck with paying off the credit cards from Christmas.

But I suspect there may be a turning point in the cycle for consumer electronics. Because we've also seen yet another profit warning from digital photography retailer Jessops. As I suspected, DSLRs are just not selling the way that compacts did - and with prices coming down, the retailer has been left heavily exposed.

I'm getting a feeling that consumers might be getting tired of new products. They've done promiscuity, they've done gadget-swapping and multiple peripherals - they just want to settle down and use what they have. Or perhaps they just don't have the money for more.

I wouldn't be looking to the consumer side of the tech sector for growth right now.

When is a sale not a sale? a user not a user?

Interesting chat today with the guys at @UK.

@UK provides an e-procurement service aimed mainly at the NHS and local government. So, first of all, they have to sell the service. And they did all right at that, signing up over 60 users. (My guess is they have 10-15% market share in local authorities, not bad for a fairly new business.)

The problem though is that flogging the e-procurement service doesn't really generate revenues. Those only come when transaction flow starts. The council has to link its suppliers up - and integrate e-procurement into the workflow. And this just wasn't happening.

Fortunately @uk has realised the problem and is now sending consultants into existing customers' operations to revitalise the concept and bed down the new processes. It's also focusing on low hanging fruit such as savings on taxi fares (a big area of spend for some rural councils) and temporary staff recruitment.

The problems aren't even technological. They're about just getting the clients to start using the process, finding the right areas to target, getting the paperwork done.

The programme is already starting to bring benefits. @UK will keep bringing on new clients, but the real opportunity isn't about winning new deals, in the short term - it's about getting the existing signed up users to exploit e-procurement properly.

Now so far of course this is only of interest if you're following the public sector software sector in the UK. But in fact, it's very relevant to social networking sites, which have a real problem with inactive users.

I'm a good example. I maintain a vestigial profile on Facebook, Friends Reunited and a few other sites - but I hardly ever use them. I don't really have time and they're not an integral part of my business.

I imagine this is the same for a lot of their users. So that a few million 'registered users' may come down to just a couple of hundred thousand active ones.

Now social networking has become a little boomlet - "Dotcom Boom 2.0" if you like. I think the social networking sites really need to show how they are keeping their users loyal - how many of those users are coming back. And if they don't have a strategy for encouraging more active usership, then they may well come unstuck as soon as new user growth starts to slacken.

The unknown tax break!

VCTs have attracted a lot of interest because of the tax break against other income in the year you buy them. True, Gordon Brown has reduced the break from 40% to 30% - but it's still sizable.

However, that only applies to new subscriptions. But there's another tax break which is stunningly simple and yet practically unknown.

Dividends from VCTs are exempt from tax. And apparently you don't have to subscribe (ie buying new shares) to get this tax relief - you can buy second hand shares on the market from any stockbroker.

Now, yields on VCTs can be 6 to 9%. One of the reasons for this is that they tend to recirculate capital gain as yield in order to make use of the tax break - so basically, you're looking at an investment which, like a bond, should be worth zero when it reaches the end of its life. Of course you don't have bond-style security, since some investments may be high risk (though in the case of the many AIM trusts now available that's less the case).

Why is there no stockbroker looking to exploit this loophole? As a higher rate taxpayer, with significant investment income, I could probably save about four grand a year if I bought AIM VCTs instead of regular unit trusts to get my yield up. The right due diligence, and I should minimise the risks.

Okay, these aren't liquid investments. (Well, nor are buy to let properties. But there's a whole industry serving those!) But while brokers invest in coverage of smaller companies, no one is really offering an aftersales service for VCTs. Brokers are only interested in the low hanging fruit of initial subscriptions.

Yet again, financial advisers aren't earning their money.

Oh yes, and I got someone offering me a wonderful break on Inheritance Tax the other day. Hm. I'm over forty and have no kids. Why can't he manage to save me the higher rate tax I'm paying now, instead of saving me theoretical money when I've snuffed it?

Why doesn't the City get the internet?

The Daily Telegraph doesn't seem to be alone in not understanding the net.

I've just had an email from an investment house telling me they've added an entry to their blog.

Do they not understand that RSS means I know this already?

I'm afraid all the interesting conversations I've had with PR firms about new media are in trade PR. For instance Ashton Billige in property PR have some good podcasting and portal clients, and know their stuff when it comes to new media. And Eulogy!, which has mainly media clients, is really ahead of the curve on blogging and search engines.

City PR firms on the other hand, with limited exceptions, seem to think their job is done if they get the regular regulatory news out. Few of them put out much beyond that and as far as I know, none of them are really blogging or podcasting.

Then we have the example of Stock Market TV, which is a show that goes out at 11 am. On a web site. It's not on Youtube. It's longer than 20 minutes. You have no way of navigating through the streaming media or downloading it. It seems to me to be driven predominantly by a linear programming, television focused model. The content might be okay but a TV programme on a website is, er, very Web 1.0.

I'm not sure why the City doesn't get it. Wall Street does. But in the UK, despite the immense amount of wealth possessed by reasonably youthful web, IT and telecoms entrepreneurs, the City seems still to be driven by the needs of fifty and sixty year olds if you look at much of the advertising. I may be wrong, but I just get the idea that innovation is not happening in the City.

Fractional ownership?

Fractional ownership is making waves in the world of overseas property.

We've had timeshare. A good idea in essence but much diluted by spivvery. Now fractional ownership looks more interesting - smaller groups of investors each holding a share in the property directly.

I've been talking to my boatyard and we've decided a similar ownership structure might work nicely for my poor old boat. At £17k she's a big mouthful for an individual - and she's wood, so the maintenance bill is quite large, even though being a cheapskate I do the varnishing and painting myself.

Split the costs into five though and she becomes pretty affordable. And who spends more than three months a year on the Norfolk Broads?

Even better, if it works, I get to take out most of my money but still have a share in the boat. That I could live with.

We'll see if it works. It's good for the boatyard, because they get to keep the mooring fees and maintenance jobs. And it's good for me. I just hope we can find four other people who think it's good for them.

I wonder what other areas are open to fractional ownership schemes? Anyone want a half share in a charming Frenchman, only slightly used? :-)

"getting" the internet

The Daily Telegraph's idea of being the 'number one' UK web newspaper is good copy. But it falls down on audit figures. It falls down even more severely when you try and get in touch with a journalist.

The web site doesn't have a number for the switchboard. It has a single email address for an outsourced press office, and I know from experience that they don't reply.

It suggests that readers might care to "write a letter" to the newspaper.

That's just amazing. I thought they were a "news" site. Instead, you can imagine - "Here is the olds - three days ago Tony Blair resigned and we have just got the press release, courtesy of the Royal Mail."

Well of course that wouldn't happen. But I do wonder if the people who are trying to give the Telegraph into a decent website actually understand that the organisation is behaving like a dinosaur as far as newsgathering and press relations are concerned?

I wanted so much to talk to them. They have an integrated newsroom. Apparently. And I'm doing an article on the integrated newsroom for InCirculation.

But they don't have an integrated internet policy.

And I just think they don't really "get" the net.

Testing, testing, one two three

I chatted to testing group SQS today on their results. They're growing rather nicely - organic growth at 18%, well ahead of the IT market as a whole (5-6%). They're paying a dividend, something of which I heartily approve. And they seem to be quite lowly valued, so this could be a nice choice for a growth portfolio.

What I found interesting though was their approach to offshoring. They've decided to go for South Africa rather than India, but they're still coming in with day rates about a third of what you might get in the UK or Germany.

And apparently, if you don't offer offshore facilities nowadays, no one is going to take you seriously. They've actually found that by offering offshoring, they're getting more onshore business too.

Where the problems come is with staff attrition. They reckon churn rates in India are 25% or more - that's one heck of a management problem for a software company. Not so bad for McDonald's or All Bar One, but not good where you need continuity on projects and a high level of technical knowledge. South Africa, apparently, is a lot better in that regard - and because consultants aren't job hopping so much, wage inflation is also low, another contrast with India.

I'd hate to predict that the glory days of Indian outsourced services are over. I think they'll carry on growing - and companies like Wipro have shown they are nimble and clever.

But there is certainly room for growth in other countries too and I'd love to see some South African, Bulgarian or Vietnamese outsourcers coming to AIM. (Vietnam is big in computer graphics - an interesting niche; Bulgaria used to be very big in optical systems and web development.)

Meanwhile, SQS seems to be capturing business as more and more companies see the value of an independent testing regime - putting them half way between computer consultants and auditors. With corporate systems scrambling to keep up with change, and Vista on the way, that doesn't look like stopping any time soon.

IXE Europe and the price of power

An interesting chat to IXE Europe today about their results for last year.

Their business is growing pretty well after investing in expansion of data centres. Not enough to please the market this morning, though. But there are two interesting trends underneath the surface.

First, the power requirements of the data centres are continuing to increase. That's a substantial slug of revenue now and because, during the year, IXE saw its costs rise substantially, margins were slimmed. They're now rewriting contracts to pass through any change in the price.

Secondly, though, they're moving to bigger data centres with better economies of scale. The number of centres increased by 40% - the amount of space by 57%. That should help margins over the longer term as economies of scale come through.

Business must be doing well, as there's one new constraint on the company. So far, it's been able to pick up distressed assets for ten cents on the dollar - such as the data centre in Munich built by KPNQwest. As other companies begin to notice that the market's making money again, assets are getting bid up - which means IXE may have to build its own in future on greenfield sites.

I rather like the stock though at 22x 2008 earnings it's not cheap. But it's not got the risk of 'pure tech' - it doesn't buy the servers, it just provides industrial grade power and connectivity. Clients are responsible for the quick-obsolescence stuff that sits in the datacentre. Yet it has the high growth of tech stocks. And because it's a recurring income play, once it hits profit, margins and earnings should grow fast.

Migration from legacy

Maxima has done well by assisting the consolidation of the computer services sector - buying up companies and putting them together.

But it's been rather open to the accusation that it's got a lot of legacy software in the mix. The kind of stuff that really isn't up to adapting to new systems - not web capable, not fully Microsoft compliant, tricky to integrate.

What's interesting is that now, Maxima seems to be migrating its 1,000 customers to Microsoft Dynamics and Sharepoint. If you like, it has a captive market for the Microsoft products.

And it's reporting a very much greater interest in Microsoft CRM, which is coming through to the sales figures.

I'm not a Microsoft fan. My relationship with Microsoft is a bit like my relationship with the National Westminster Bank. Once upon a time they had all my business; now, I've moved my savings accounts, credit card, current account, share dealing account to other banks, and I have a tiny US dollar account with NatWest. Same with Microsoft - I have XP, but the rest has gone to Mozilla, Thunderbird, Open Office, Media Jukebox.

But Microsoft is getting something very right with business software right now and I have to put my own desktop prejudices aside. Integration with Outlook is absolutely crucial, for instance, enabling businesses to tie together the CRM software and the email system. And having started in SME/SOHO, Microsoft has taken the step up to the midmarket with real credibility.

Maxima looks as if it's going to continue well. My only worry would be its manufacturing/construction bias - these aren't necessarily the most creditworthy clients right now. But then again, it does have enough clients that any one or two collapsing wouldn't do so much damage.

Two-tier vs one-tier property markets

It always used to be said that there were two French property markets. The ruined, rural properties for the English, and new properties for the French.

Now I don't actually think that's true. Not any more. My partner and I belong to Maisons Paysannes de France - an organisation devoted to teaching home owners how to repair and maintain their period properties in an authentic way. It seems to be quite popular in France and we've found a number of tips on where to get the right building supplies and how to insulate old houses without ripping them apart.

And all the country houses round us are occupied by French families. (Though our next door neighbour supported Italy in the World Cup Final. We are still talking. Just.)

True, young French couples tend to live in towns. But that doesn't mean they're not interested in a house in the country. It just means they're interested in jobs. For the time being. But as in England, I notice a lot of downshifters moving out of Paris - lawyers near us who work three days a week in Paris, for instance, and two days at home.

So I'd reckon France is really a single tier property market - any house could sell to French or English buyers.

Germany seems to be a completely domestic market. That may be why it's also primarily an investors' market, with most UK buyers looking to rent out apartments in Berlin rather than live in the Black Forest or run a gite in a Bavarian castle.

What slightly worries me are the number of completely two tier markets. Spain is an obvious example; there are whole areas where Spaniards never seem to venture. Turkey is even more differentiated; Turks buy in Bodrum, the Brits buy in Bodrum and Fethiye, and the Germans buy in Alanya. (The beer's usually better in German-frequented areas.)

Many of the emerging markets are two-tier. Kiev, capital of Ukraine, has become like Mayfair - most people in the country can't afford to live there! So the resale market is purely to other foreign investors - there's relatively little domestic demand (though there are quite a number of very rich locals - as in Moscow - there's not much wealth below that level). Morocco may be going this way - lots of beach apartments far away from any jobs but close to a golf course.

Is a two-tier property market always a bad thing? Not necessarily. It's an example of market segmentation - a classic strategy and one which works.

But if the UK property market starts looking sick, I wonder whether some of the two-tier property markets will catch the contagion. Right now, I suspect pure investors might be better off with German or French city apartments than a ski chalet in Bulgaria or a golf resort in Morocco.

Convergent sectors - encryption and identity management

I had a chat with nCipher management on their recent results. What's interesting is that they're emerging from what you might call a component technology to a management technology.

The original product is encryption. Vital stuff for banks (though you'd be surprised how many don't use it properly).

But just as physical security has gone far beyond putting up a door and locking it with a key, IT security has got far beyond 'simple' encryption. There's a need for the various encryption keys to be managed, and that involves identity management, backup, and storage management. All areas that nCipher is moving into.

After all, you wouldn't want to be in the position of someone who has locked up all their data - and thrown away the key. That's like throwing your car keys down the drain. And it's easy to do if you don't keep meticulous records of which key opens which data.

What's really interesting to me, though, is that nCipher is now creating management systems that will manage keys from, and interface with, their rival's encryption packages. That's very clever - it locks clients into nCipher whatever hard/software they're currently using.

Abridean, the part-owned identity management business, has disappointed. nCipher is writing off its investment and won't acquire any further stake. However, the problem is not the basic tech, apparently - it's simply that the product was not really ready for market. So in a way, this is good news - it gives nCipher the ability to dictate the roadmap and make sure the new product comes out as part of the nCipher range of solutions.

Meanwhile most brokers seem to have a buy recommendation on the stock with a target price significantly higher than the market price. I'll be watching this space.

Cashback!

Returning cash to shareholders is becoming increasingly common in the tech sector.

Spectris today announced it's going to return up to £75m to investors. Last week, nCipher said it too was going to return all but a few million of its cash pile to shareholders, through a tender offer.

This isn't generosity. Institutions have certainly been asking whether companies are going to use that cash, or hand it back.

The legacy of the dot com boom is that most tech companies - even once they're profitable - run with a healthy amount of cash on the balance sheet. In other sectors, such as hotels or engineering, most companies are geared; it's relatively unusual to be fully equity funded.

Now that tech isn't a synonym for cash burn, there's no reason why they should retain large cash reserves. So perhaps the exceptional handouts mark the transition for tech from explosive growth stock sector to profitable growth.

The end of the bull market?

British Land's comments on the market today made for interesting reading. While rental demand is strong, BL management quite correctly note that with bond yields rising, and property yields much reduced from previous periods, net asset value may rise more slowly in future (if it doesn't decline).

The basic maths is easy. If yield decreases, the price of the asset increases. So previous revaluations of BL's asset value have been driven by low interest rates and particularly by declining yields on property comparative to other asset classes.

So even though the rental stream itself doesn't appear at risk, it may be less valuable than we think.

That makes property prices look exposed. If you then add into the equation any potential softening in the economic climate - particularly for UK retail property - you are not going to like what you see.

My diagnosis; limited or zero upside, and quite a large potential downside.

Unsurprisingly the market didn't like the statement. The shares are off 60p today. Amazingly, they're still trading above the company's asset value.

Now you can call me old fashioned, but I can remember this stock trading at a 50 percent discount to net asset value. That's too much, but property companies traditionally do trade at a discount. The only reason they would trade at a premium is that you expect the asset value to increase - so effectively you're paying tomorow's price today.

Now BL management has told us not to expect a further increase in asset values. So what does that have to say about the value of the stock?

You guessed it.

I'm not quite sure this is the end of the bull market - but it is certainly the beginning of the end.

Financial software grows

Royalblue's results today were fundamentally good - though currency issues took the bloom off them and the stock price fell.

Royalblue is seeing growth in revenues at 27 percent coming through to the bottom line, with good cash conversion. And since a lot of that revenue is coming from services rather than software sales,
growth should continue strongly in the next financial year.

One of the most interesting facets of the results for me, though, wasn't the building of recurring income. It was the move to multi-asset trading and the first sales of Fidessa's multi-asset platform.

I suspect the days for single-asset platforms are over - at least where mainstream assets are concerned. You can't do proper risk management if you have to reconcile data on different asset classes from independent silos of information. So gradually, equities, derivatives, and bond trading data are all being brought into single systems.

There will still be a place for specific corporate actions systems. But trading platforms and risk management are increasingly driven by the need for cross-asset support. Commodities will surely be the next market to be brought into the fold - where it hasn't already.

I couldn't help noticing a line in the report that mentioned the strong M&A market. We've seen a lot of mergers in the financial services software market over the past couple of years - but I don't think the consolidation process is over yet. Two years ago, it was being driven by distress - now, it's being driven by success, with strong revenues (and strong cash reserves in Royalblue's case) supporting the ambitions of the larger companies. Watch this space.

The new telecoms

BT results are very interesting. For the first time, the company has reversed its market share losses in the residential market. Obviously - though it took more than fifteen years to chip away - its quasi monopoly share was no longer tenable; it now seems that it may have found its natural place in the market. If I was the regulator I would be turning my attention to BT as a wholesaler - where it remains dominant - rather than as a retail provider.

'New wave' revenues are now well over a third of total. Again, that doesn't make BT the most exciting company out there, but it suggests it has now reached an accommodation with the market.

The share price reflects this. I bought mine around 180p I seem to remember - they're now trading at 319p. That's still giving a forecast 4.5% yield, according to Digital Look; less than the bank, whereas it used to be some way higher. My gut feeling is that this isn't too stingy, given forecasts for 14% EPS growth this year, but if the shares went much further up I might have to revise that opinion.

What Netcall is doing right

When I started looking at Netcall in 2004 it was a company in need of salvation. Its Queuebuster call centre software was well regarded, but occasional big licence fees didn't add up to a sufficient stream of earnings to defray its costs.

Now, it's doing well and the share price has nearly doubled in six months.

What has it done right?

First of all, it's grown its hosting business from nothing to not quite £1m this half-year. That increases visibility of earnings - it's also a USP in the field, as far as I know. Increasingly, businesses prefer to pay for what they use - converting a one-off capex payment into a regular budgeted cost.

There's an accounting question here. I've always been very suspicious of apportioned costs - and I'm obviously not the only one. By turning an apportioned depreciation cost into a cost that can be directly allocated to a given transaction or stage in a business process, such hosting deals enable businesses to see the cost of their operations far more transparently. Where the price is usage-based rather than purely rental, that is even more the case.

Secondly, Netcall never bothered about whether the ASP business would cannibalise its licence income. It probably has - but the company as a whole has grown. I remember from my days as a BT accountant that business cases were all about 'protecting the existing business' - definitely the wrong way to run a business, unless you really want to run it down and siphon the cash off.

Thirdly, the company has got three strong partners who are actually selling the software - BT, C&W and Affiniti. Indirect channels aren't always easy to get right - but Netcall seems to have managed it, by concentrating on growing a small number of good relationships rather than a scatter-gun approach to partnerships. The indirect channel now accounts for over 40 percent of revenues.

Alas, the shares look expensive, on thirty-something times earnings for this year and 17x next year according to Digital Look. I do wish the company hadn't got such a lot of publicity for its turnaround :-(

Better odds for your bet

I always like a contrarian investment. For the last couple of years Betinternet was one of those, but in the wrong sense - its shares kept heading downwards while it seemed any other stock with the words 'game', 'gaming', or 'bet' in the title could only rise.

But now, Betinternet's out of the woods, with an interim EBITDA profit and an upbeat trading statement, while the gaming sector's in the doldrums.

Reason why? It gets a high percentage of its revenues Far East - and practically none from the US, which is where all the trouble is. In other jurisdictions governments are more gambling-friendly - and demand is still rising.

So I'm tempted to put some Betinternet with the William Hill I've already got in my own gambling portfolio.

There is of course the minor difficulty of no forecasts being available, so it's a bit difficult to calculate what the true odds are. But they must surely be better than for Neteller or Partygaming!

Flip flop to flash

It's official. The floppy disk is flipped.

PC World is going to run is stocks down, and then that's it. No more floppies.

The death knell wasn't provided by CDs and DVDs. Yes, they took over the data storage job. But for quickly transferring a spreadsheet or a text document from one PC to another, the floppy still had a useful job to do. It was so much quicker than cutting a CD. And it was reusable. And cheap.

But now we've got memory sticks. USB memory. External HDDs. And we've got the internet and PTP and local networks, and home networking has become so easy a kid could do it (though just for the record, I still occasionally have problems with mine).

Flash memory is probably what really killed the floppy.

That, and size. Size really *is* important you know. Imagine trying to stick a floppy disk in your mp3 player or compact camera!

In the other dimension, floppies are just too small. At 1.44mb they won't even take a single decent resolution photo file. And there's been no development of this product for what, ten years? Time to go gentle into that good night.

Vista - I'm underwhelmed.... and then again...

When the new version of Internet Explorer (7, for those of you who're counting) came out I was a little underwhelmed. I'd been using Firefox for a while, and all the improvements IE7 boasted were things that Firefox had already got - like tabbed browsing and a phish detector.

But IE7 did at least deliver a better browsing experience for IE6 users.

Now Windows Vista has been launched. A whole new operating system.

According to Microsoft it has 'hundreds of new features'. To be honest I'm not sure if 'a new GUI' really counts. I know about ninety percent of us keep the GUI in default mode, but changing the style of the windows and the colour of the menu bars doesn't count for me as a hardcore new feature.

Security has been enhanced, apparently. But that's something Windows has needed to address for a good long time.

It does sound as if the new shell is an improvement. I think many of us have got sick of our computers telling us to file a picture into 'My Pictures' even though we'd rather save it in the same directory as the Powerpoint presentation for which it's intended. Microsoft has taken this on the chin. Vista will give new ways of organising files in 'stacks', better searching capabilities,
'shadow folders' which can be returned to any past point (similar to the multiple levels of undo in Photoshop, which are one of its best features).

And it also allows the user to add metadata. That's really important. You'll be able to tag your files as if they're blog entries. Within an enterprise, or a collaboration, that will make the job of running taxonomies much more critical - but also opens up the potential for much more efficient knowledge sharing.

Now I don't have enough knowledge on other OSs to say for sure whether that's a differentiator for Windows, or just Microsoft playing catch-up. But it's the file system that seems to me to be the real selling point for the new version.

Mobile starts to motor

I spent quite a lot of the summer of 2006 trying hard to convince a number of people that 5x was not an appropriate PER for a mobile content company, even if the market had fallen on hard times.
Regulation and consumer cynicism after the Crazy Frog episode (customers finding out that they had an expensive subscription they couldn't stop, when they thought they'd just bought a single ringtone) had hit the market. And ringtones were beginning to slow down anyway.

I feel quite smug this morning.

Bango has come out with a positive trading statement. WIN and 2ergo have already announced positive updates. So it looks as if the slowdown is over.

Some of the share prices have done rather well. But WIN, for instance, despite a real spike in late December (120p to 180p in a few days) is still trading 30% below its year high. Sitting on 15x earnings for the financial year just past, and 12x for next year, it's not outrageously cheap - but that does represent quite reasonable value for a company expected to grow earnings at 30%. (If it succeeds, of course.)

Is there more mileage? Well I suspect there might be. Ringtones may be old hat, but mobile operators now need software for handling many more types of content. Besides, there's one big change in the market since the beginning of 2006; there's a much bigger population of phones out there with multimedia capabilities.

It's been a long and bumpy ride.... but I'm going to hang on for the moment.

Portfolio management issues with overseas property

I'm a hard line economist with regard to portfolios. There is a single commandment: diversification.

That's why I worry when I see 'investors' whose total wealth is in residential property. They seem to think they are not running a risk.

With all their assets in a single asset class, they have in fact taken on a massive risk!

Now I'm not advocating that we all have model portfolios. My own portfolio, for instance, has a much higher skew to emerging markets and new technologies than most, including a big chunk in alternative energy stocks. But then I also have quite a bit of cash. And residential property. (I probably should have some commercial property - but not at today's yields.) And a boat.

(Does anybody want the boat by the way? She's a lovely 28' Broads cruising yacht*, all mahogany and gleaming brass, and she's for sale.)

But for all except the very wealthy, or those specialising in cheap-as-chips markets (which in itself implies a lack of diversification, committing too heavy a percentage to high risk areas), diversification in overseas property is unachievable. Simply, each property costs too much. And there is a big overhead in terms of management time and cost.

So I was impressed when I saw what 4:Property Projects has been doing in Eastern Europe - setting up projects with a minimum £10k entry level. Think about it; for a £30k in-cost, you can participate in three different markets - spreading your assets between property types, countries, and locations.

Because 4:Property joint ventures with developers, and is selling a share in the project, it's a hands-off transaction. And investors should get better returns than buying their own property because they'll get a share of the development margin. Even better, there should be a decent exit as the project will last from one to three years, creating a natural exit point.

I haven't seen the prospectuses yet and this *is* defined as a product for sophisticated investors only. But it's a very interesting way forward. I wonder if they might list on the stock market eventually? Then you wouldn't even need £10k to invest - you could just buy shares through your online broker. I wonder if you could put them in your SIPP?

Imate profit warning

Imate's profit warning seems very familiar. It's blaming supply problems. The market is there - but it can't supply it, as a key component is not coming through.

The shares are down 40 percent. And no relief is in sight; the problems are likely to continue in the first half of next year.

Supply problems always seem to wrong-foot the analyst community. For some reason, the City doesn't seem interested in supply chains - just in sales.

Now for retailers, let's say, supply chain usually isn't a huge issue. If you can source knickers from China, you can just as easily get them from Tunisia or Poland. As long as the elastic works you should be OK.

With technology the issues are very different. The quality bar is much higher - and a shortfall in quality can be just as damaging as complete interruption of supply. Where unique components are being manufactured to a specific requirement, and particularly in fast moving areas such as wireless and IPTV, switching source isn't easy.

I started this blog entry by saying the problem seems familiar. Anybody remember Trafficmaster's issues with sourcing of components for is Smartnav system back in 2004? or Jessops blaming difficulty getting hold of DSLRs for its subdued Christmas sales figures this year?

Perhaps we should be asking management how they manage their supply chains. But we're not. Companies are required to disclose their hedging of foreign currencies but they're not required to put any mention of their sourcing policies in the annual report. Which is really more important for a tech company - a 5% variance in this year's profits, or the entire business strategy belown to bits?

More etail

More evidence that etail's taking over from retail in a suggestion that Curry's will eventually move off the High Street.

The interesting thing here is that if the specialist retailers all move this way, what's going to happen to the High Street? Will our town centres once again be full of little local stores and boutiques? Will we have French-style streets with boulangers and decent butchers?

I rather doubt it. It's the supermarkets, not just high rents, that have killed the local food shop; and that's not a trend likely to be stopped.

I suspect instead we'll have high streets that look like down-at-heel shopping centres do now - loads and loads of charity shops, a forsaken Iceland, and a couple of discount furniture stores. Which of course has implications for commercial property.

The difficulty of course is that lots of people use Curry's and similar shops to browse the stock, find out what they need - and then order over the internet. (Of course, they may order from a website that has keener prices.) So actually, although the accounting figures appear to show that you can close the shops, you're potentially losing a competitive advantage for your own web sites if you do so.

Jessops seems to have got one thing right. It's negotiated a number of exclusive deals. You cannot get them anywhere else. So if people pop into Jessops to look at a particular camera, they can order it on or offline, but they still have to buy it from Jessops. That's smart. Perhaps Curry's real problem is that it's for the most part just selling commodities. And that means people do shop on price; and they can go elsewhere.

Online vs offline

The Tesco results yesterday were very interesting for followers of online business strategies.

UK like-for-like sales were up 5.9%. However, Tesco's online sales were up more than 30% to £150m in the six weeks to January 6th. That's a drop in the ocean compared to Tesco's other business (£2bn a year profit!) but it's pretty sizable for online retail.

A report in the Telegraph suggested Ocado, Waitrose's online retailer, saw sales up 55% in the runup to Christmas. Waitrose is doing pretty well, with like-for-like sales up 6.2% - but again it's the online business that's making all the running.

I've never thought food retail was the most likely candidate for online sales. Unlike travel tickets, hotel bookings, or books and CDs, you've got a bulky product and you need to have your own distribution network - so the investment is massive. But it does seem to be getting more popular and as these figures prove, even in the 'bricks' world, it's the 'clicks' that are winning.

iPhone

Well, the iPhone is out, bringing to an end a year of feverish speculation.

It looks good. It has wifi, it has the web, it has a 2 megapixel camera, it has iTunes, and it's a mobile phone.

But is it revolutionary? No, I don't think so. Plenty of other phones have similar functionalities.

What I do like is the small features that make the difference. For instance, everything works on a touchscreen. No moving bits on the front. That's elegant.

And the sensors built into the iPhone are very clever. Turn it sideways, and it works out that it's sideways - displaying photos and text the right way up. Slap it next to your ear, and it works out that you're using the phone - and switches off the display, saving power. That is genuinely smart and a real Apple touch.

I suspect though that the big question won't be answered for a while. Will it be more durable than the iPod? There have been just too many iPods falling to pieces in eleven months - the brand has a name for good design, but equally for poor maintainability. If Apple has got this right too, then the iPhone might well take off.

Bulletin Board Brouhaha

There's an interesting little story hidden deep in the Guardian's media news. Conrad Black now faces allegations of ramping his shares on a Yahoo! Finance bulletin board.

Anyone involved in investor relations, financial PR or corporate broking will recognise the situation - the investor relations guy pointing out that he can't disclose price sensitive information, and put under pressure to get the share price up any way he can.

What makes this story that much more interesting is that Black allegedly then went ahead and wrote his own contribution to the bulletin board under an alias.

I know some small company CEOs and IROs contribute to bulletin boards - under their own names, with careful attention to disclosure standards. I wonder how many others, though, think they can get away with manipulating the share price through an occasional BBS comment? Those days may be numbered. On the internet, now, *everybody* knows if you're a dog.

The digital photography opportunity

Forget digicam manufacturers and retailers. The real opportunity lies elsewhere.

Have you noticed how as soon as you free consumers from having to pay for film, they start taking more pictures? And sooner or later they need somewhere to put them.

Flickr of course has already made its money in this area. But now there are a number of other businesses all looking to leverage this trend, in printing and storage.

I particularly like some of the Flickr symbiotes. Moo is particularly nice - it prints mini business cards using your Flickr photos on the back.

The one area that's really been saturated, I suspect, is snapshot printing. There's a plethora of services including one provided by Asda. Look for larger sizes, though, or for T-shirt or mug printing, and the number of options slims down. Perhaps those are areas a moo-style Flickr symbiote should get into?

Digicams go soft

The trading statement from Jessops shows what I had been fearing for some time - the digital camera market has gone flat.

Like for like sales were actually down nearly 7% for the six weeks to 5th January. That's quite a fall - particularly given that digicams were according to many commentators the bright spot in a saturated consumer electronics market.

I suspect there are a number of factors at play. One was certainly general consumer malaise. And another, which has been widely picked up by the press, was the increasing availability of cameraphones. If you have a basic camera on your mobile, why buy a separate digicam?

However, that of course only affects the bottom end of the market. Nerds like me (still the proud owner of two Pentax K1000s) go for SLRs. Digital SLRs have now fallen out of the £5k a pop bracket and you can get the new Pentax DSLRs for under £400. (A definite plus, all K-mount lenses are compatible with the new range - Microsoft, read this and weep!)

But the big problem, I think, is that it's only the nerds who are buying the DSLRs. So the volume end of the market is getting savaged, while I suspect Jessops is having a very hard time shifting consumers up the range from compact 'point and shoot' to SLRs.

What's in the future? Well, it's intriguing that while DSLR prices for new models have come down, old models never seem to be discounted. I think we might well see a change in that pattern. And speaking personally, I rather hope so ... if I could get the Pentax *ist for £300 I'd be sorely tempted!

Datacentre strength

A good trading update from IX Europe this morning shows strong demand for datacentre space - particularly from the financial services sector, at its new London 4 datacentre. Over 15% of capacity is already committed andthe company is accelerating its fitout programme.

There are fewer opportunities for portfolio investors in the hosting and datacentre sector than there used to be, with Telecity taken out by 3i and Redbus by Telecity. But IX Europe looks interesting. The share price has risen from 30p to 50p plus over the past few months and it does seem that the company is seeing its potential recognised.

I've always liked recurring revenue plays and I've always liked hosting and datacentre business. The economics now look good; the savage price erosion we saw over the fallout from the dotcom boom has slackened, we're on to a tech refresh cycle that means capacity laid on during the boom is now no longer competitive with new facilities, and demand is increasing. I think I might be tucking some of the shares away, and I will definitely be looking for more like this one.

Retail Weak

Ebay has just come in with Q4 listings 10 percent below analyst expectations, according to Piper Jaffray. Together with price increases for its listings - which major ebay sellers will probably pass on to their customers in terms of higher transaction fees, thus depressing sales further - that does not bode well for future sales.

Retailers are currently blaming increased online sales for their woes. But online sales too appear weaker than expectations. Consumer business is beginning to taper off as higher interest rates and lower disposable income set up a double whammy on the credit-card dependent shopper.

It's possible other etailers will do better. But I suspect etail will not be flavour of 2007.