Fayrewood Plc, a UK-based computer equipment distributor, is to float off its German subsidiary on the Neuer Markt in a manner that highlights the enormous disparity in the way IT stocks are valued in London and Frankfurt. If the IPO of the unit, Computerlinks Computerhandels Aktiengesellschaft, goes ahead, the company could well have a market valuation substantially in excess of its parent. A rise of 13.7% in Fayrewood’s shares yesterday signaled a muted anticipation of the riches to come. We feel we see a chance to create a substantial increase in shareholder value, said Fayrewood chairman Pierce Casey.
Fayrewood’s business plan has been to unlock the value in well-run privately held IT companies, leaving a more motivated management in place to continue running the business. However this has been thwarted by the poor valuation of computer distribution companies in London which has seen Fayrewood shares traded on eight or nine times historic earnings. On a Neuer Markt with an insatiable hunger for IT stocks, valuation of 30 times earnings is common.
The difference in London and Frankfurt valuations is one of the main topics of debate in the city. As moves are made to link up European stock markets, pressure for a single valuation will increase. For the year to December 31, 1998, ComputerLinks increased net profits by 160% to $833,000 on revenue 46% higher at $24.3m.
Separately, Fayrewood revealed it is in the process of buying a French distributor of internet and intranet-related products.
