When Flexicom, the Dublin-based provider of software for the card payments industry, gains a listing on the Irish Developing Companies' Market (DCM) it will bring to five the number listed on the dimunitive market. Getting off to a slow start, the DCM is starting to exude a healthier hue.

However, that market, designed to provide the seeds for fully listed companies, has still a long way to go.

Ideally, it should have about a dozen companies, particularly in this go-go economy. That ideal, however, should not be pursued if it were to result in an unsustainable high failure rate. Quality is preferable to quantity.

Many embyro companies might be more suited to the venture capital route. As it is, companies on the DCM are likely to have a higher failure rate than those with full listings. However, the DCM is a useful halfway house to a full listing. Moreover, the Irish Stock Exchange (ISE), with its relaxed rules for a share quotation, has made it easy for companies to gain a DCM listing. The rules are less onerous than what is required under company legislation. Companies need to have only one year of revenue producing behind them, need only float off 10 per cent of the shares, but the directors, naturally, need to show they have no conflict of interest. The costs for a quotation vary. However, the percentage of costs is much higher for companies that raise small amounts. Independent Telecoms Group (ITG), the first DCM entrant, for example, had gross proceeds of £2.0 million from the placing of new shares.

This came down to £1.71 million after expenses of £290,000 - that was more than ITG earned in the nine months to January 31st 1997. The ratio amounted to a cool 14.5 per cent. These expenses included a commission of 2.027 per cent to Townsley & Co and a commission of 2 per cent to Goodbody Stockbrokers.

Rapid Technology, the designer of electronic point-of-sale keyboards, did a little better. It raised £5 million gross with an estimated net of £4.49 million. That put the expense ratio at a little over 10 per cent.

BCO Technologies, the Belfast-based electronics company, raised a net £9.3 million after expenses of £690,000. The expense ratio was a low 6.9 per cent. However, the main questions must be has the DCM experience been good for the companies, and how have investors fared?

It has obviously been a step forward for the companies. They have gained fresh funds and they gained extra exposure which is a plus, particularly for high tech groups trying to gain a niche in the market. It is too early to make a judgment on the benefits, if any, that have accrued to non-speculative investors. However, SupaRule, the Limerick-based manufacturer of technologically advanced measurement instruments, the latest entrant, has not yet made any headway in its share price, nor has Rapid Technology. BCO has shown some growth.

However, ITG has been a sparkler with a more than doubling of the placing price. In addition, ITG has been very acquisitive.

It has taken on Telecom Eireann's stranglehold on payphones and last month extended its influence in this area with the takeover of Telecentral, a British payphone company, for up to £10 million, funded by a placing and open offer raising £12 million. Obviously, ITG has, and is, using the DCM base to its advantage. Some companies have shied away from the DCM and opted only for London's AIM. Moreover, ILP, the Leixlip-based packaging company, initially got a listing only on the London Stock Exchange, saying it was not interested in an Irish quotation because it felt Irish institutions did not favour small Irish flotations.

Ironically, a year later, after the publication of the 1996 results which were below expectations, it decided it was an opportune time to seek an Irish listing. However, a welcome move is the tendency for the new entrants to seek a dual DCM and AIM listing, as Flexicom is doing. The ISE has forecast that there would be 8 to 10 new entrants - full listings and DCM - this year, or by the first quarter of 1999. In the full listing, it already has had Athlone Extrusions, Tesco and Marlborough International which moved a step up from the DCM. However, possibly the largest new entrant, later this year, will be a full listing by First Active. Horizon Computer Group is also likely to go for a flotation. And there should be more DCM entrants - what is needed is a few more ITGs and Marlboroughs.