There are some who believe shares in Zergo - the British software group that took over Baltimore Technologies for £40 million (#51 million) late last year - have become more than a bit frothy, despite the announcements this week detailing a series of big contracts with Intel, PricewaterhouseCoopers and a whole clutch of European PTT groups.
Just to put all this in context, the Zergo share has risen more than 400 per cent since it bought Baltimore for a mixture of cash and equity. And in the past week alone, the shares have risen more than 30 per cent on the back of the various announcements. All this for a company that has made negligible profits in the past.
But looking at Zergo's past figures is irrelevant and valuations put on software companies like Zergo - soon to be rechristened Baltimore - are now more in line with the Nasdaq-type valuations put on hightech companies.
The Zergo price of not far short of 800p sterling (#11.42) bears no relation to the group's current business, but to the sort of growth investors believe is achievable as more and more companies look to secure their e-commerce activities. Zergo/Baltimore is now the world's second biggest provider of Internet security software.
It's a bit late for the small investor to get on the bandwagon, given the scale of the rise in the shares this week. And, in any event, technology stocks are probably best avoided unless one has the money and actually understands what companies like Zergo do.
Zergo/Baltimore is, no doubt, a fine business with huge growth prospects. But a year ago, much the same sentiments were being expressed about CBT, not long before the shares collapsed from more than $60 (#38.10) to less than $7. Software stocks - and their various associated businesses - can be boom or bust investments and are best left to those who can afford to gamble.
Not that those cautionary words worry Dermot Desmond, Fran Rooney and the Baltimore employees who opted to take a large chunk of Zergo shares when the Irish company was sold late last year. Under that deal, Dermot Desmond ended up with 15 per cent of the merged company, Fran Rooney with 4 per cent, with another 8 per cent divided among Baltimore employees. The value of those shares has since quadrupled. Nice deal, that!
(# - Euro)
