Baltimore Technologies' share price failed to respond to the company's stronger than expected first-quarter results, released yesterday. In London, the shares closed £3.33 sterling weaker at £66.36, while on the Nasdaq in New York, they were down $5.37 1/2, or 4.83 per cent, at $106.
Revenue doubled in the first three months of the year to $15.08 million (€16.7 million).
But, as the information security software group continues to build scale, losses for the quarter increased marginally to $11.56 million (€12.8 million), from $11.09 million. New acquisitions contributed revenue of $700,000 and generated operating expenses of $900,000.
Revenue growth, a key factor in the performance of developing technology companies, was well ahead of broker forecasts - revenue of $12 to $13 million had been expected. And the first-quarter loss was less than broker forecasts of about $16 million, indicating that losses are slowing. One analyst attributed the share price fall to a fear that the shares could be deleted from the FTSE 100 Index in London at the next review on June 7th. Describing the company trading performance as "very strong", Ms Jemma Houlihan from ABN Amro said that, until the technical overhang was clarified, investors were staying away.
Having entered the FTSE-100 list in March at number 70, Baltimore is now at the end of the list. "The Baltimore share price needs to stay north of £68 [sterling] to stay in," Ms Houlihan explained. Baltimore chief executive Mr Fran Rooney said the FTSE situation was "not a major concern". "It was never our objective to be part of the FTSE. Our objective is to grow the business and make it profitable. As long as our market capitalisation and our price out-performs our competitors and potential acquisitions, that is the most relevant thing for us," Mr Rooney said.
Following the latest results, brokers Merrill Lynch upgraded its rating on the group from "buy" to "accumulate". While analyst Ms Coleen Kaiser did not change her earnings estimate, she commented that "the outlook is more positive and the momentum is building faster than expected". In the first quarter, software licence revenue rose to $8.2 million, up 800 per cent, and accounted for 55 per cent of total revenue compared with 11 per cent in the previous corresponding quarter. Licence revenue reflects the demand for Baltimore security software products.
With first-quarter revenue up 33 per cent on the final quarter of 1999 and the US and Japanese acquisitions now due to contribute for a full quarter, Mr Rooney is confident the company can achieve quarter-on-quarter revenue growth of 15 to 20 per cent through this year.
Asked when the company expected to turn revenue growth into profit, Mr Rooney said the latest results showed the company was "closer to profitability". He said he was "comfortable" with analysts' forecasts that break-even would be reached by the fourth quarter of 2001.
Mr Rooney described Baltimore as "extremely well-positioned in the US and Japanese markets, and we're starting to win a lot of business. We have a lot of confidence in the future".
The group was looking at further acquisition opportunities in the US and in emerging technology areas, including mobile commerce and wireless technology companies, he said. The US now accounts for 18 per cent of Baltimore revenue, with revenue from this market up 180 per cent on the final quarter of 1999. Europe, the Middle East and Africa account for 52 per cent of revenue, with Asia Pacific making up 30 per cent. Mr Rooney confirmed that the flotation of its Japanese operation was an option. But he added that there was still work to do to grow the operation.
At the a.g.m. in London yesterday, shareholders approved a stock split which will take effect from May 12th. Ordinary shares will be split in the ratio of 10-to-one on the London Stock Exchange, while the American Depository Receipts (ADRs) will be split five-to-one.
