Opinion/Bill MurdochMinnows are expected to grow and mature. Otherwise they will just float around aimlessly until they are gobbled up, or just fade away.
The Irish Stock Exchange has always been peppered with minnows, but with the severe slump in the market their presence is now more marked. A mere glance at any Irish share list should be enough to signal an alert for the immediate future.
Out of the 73 companies listed in these pages, 10 or 14 per cent have a market capitalisation of less than €10 million, 15 are priced under €20 million and almost half are valued by the market at less than €100 million. The percentages are even more grim if the 17 companies on the list which do not have their listing in Dublin, are excluded.
The sad thing is that most of these minnows are not going anywhere. A healthier environment would see them as embryo international companies. Certainly among the smaller indigenous companies, the candidates are just not there. There are no potential CRHs or Waterford Wedgwoods or Kerrys.
In the medium-sized companies category, there are some that are making strides. Grafton, for example, with a valuation of half a billion euro is now five times the size of its main domestic rival Heiton. With the expansion of large-scale international competition, the case for a Grafton/Heiton get-together is now even stronger than ever.
IPOs (initial public offerings) have filled the void in Britain but not here. Indeed, the abandonment of new issues has frightened potential IPOs away. The pulling of the C&C issue was a particularly severe blow to market confidence. It is not so long ago that there were a potential 40 IPOs in the pipeline; the general view now is that there will be none this year.
Don't expect any thrills from the companies quoted on the Exploration Securities Market. These consist of Glencar Mining (market capitalisation of around €1 million), Minmet (€20 million), Ormonde Mining (€3 million), Ovoca Resources (€3 million) and Providence Resources (€6 million). They are totally for the speculator.
And what about the potential of those quoted on the Developing Companies Market? Weren't companies on that list meant to be the entrepreneurial seeds for the future? Forget it. There are no signs of a coming eruption on to the corporate scene. That market comprises CPL Resources (€10 million), Rapid Technology (€3 million), Sherry FitzGerald (€16 million) and SMF Technologies (€3 million).
With indigenous industry under strain from increasing costs and lost competitiveness, it will be up to the IT sector to produce a new crop of publicly quoted companies. That won't be easy with the collapsed share prices, a route understandably chosen now is to privatise companies, as has been witnessed by the recent, and pending MBOs.
There are only seven IT companies with shares quoted on the Irish Stock Exchange's ITEC market and just two with values in excess of €100 million. They are Alphyra Group (€82 million, which is going the MBO route), Datalex (€28 million), Horizon Technology (€18 million), Icon (€280 million), Iona Technologies (€90 million), Riverdeep Group (€270 million, another MBO target) and Trinity Biotech (€57 million).
With the exception of two companies, the turnover in these companies' shares has been very low.
As would be expected in the midst of an MBO bid, Riverdeep had the greatest activity with a whopping turnover of €195 million in its shares in the two months to the end of February.
The worst of the excesses in the IT industry have been largely exposed so the potential is for a sounder industry and one in which investors can invest with a greater degree of security. But by its nature, it will remain much more speculative than the bread and butter industry.
Despite the sour stock market, the Irish Stock Exchange enjoyed strong growth last year. Turnover rose from €51 billion in 2001 to €70 billion in 2002, according to figures published by the exchange on its website. That represents a 38 per cent increase and is more than double the level in 2000.
But was the growth persistent throughout 2002? Yes, very much so; only one month, March, showed a contraction and the figures reveal strong growth in each of the other 11 months.
This latest upsurge arose mainly due to purchases by foreign investors. So while foreign central banks moved to run down some of their dollar reserves and convert them into euro (that led to the strength of our currency), foreign investors were buying euro stocks.
According to the exchange figures, there was also a surge in the purchase of Irish government bonds; the turnover in these more than doubled from €44.9 million in 2001 to €93.4 billion in 2002. There was an exceptional €36.2 million in January 2002 but even if this were excluded, the growth was still strong and last month the turnover increased from €7 billion to €9.8 billion.
And what about the stock market this year? Turnover rose from €5.1 billion in January 2002 to €5.9 billion in January 2003, while there was a contraction from €5.5 billion to €4.9 billion last month.
While there is no discernible trend so far, the turnover for the combined two months is up 1.5 per cent on 2001 and well up on 2000.
Still the number of companies quoted on the exchange fell from 101 in 1999 to 76 in 2002. That trend seems destined to continue this year, and there will be no help from the minnows.
bmurdoch@irish-times.ie
