Hopes of American buying, and remarkable early sales of Turbo C and Turbo Basic, helped sustain Borland International Inc’s share price yesterday after the company reported full-time results substantially below even the worst City estimates. In its first full figures since going public last year, Borland showed pre-tax profits of just $4.7m, against $8.7m last time, on turnover marginally up at $29.2m. But, the figures look even worse when compared with in-house broker Barclays de Zoete Wedd’s original estimate of $12.8m pre-tax for the year. After product delays, Barclays, in the person of Jane Anscombe, reduced its forecast first to $7.5m and then to $6m, but the actual result still came as some surprise. Ms Anscombe says that the second revision was only an approximation, but she is now confident enough to pencil in $13m for the current year. At 205p, down 5p on the day, that would put Borland on a multiple of 23 – not cheap by most standards given the uncertainties. Microsoft and Lotus, for instance, were last week trading on multiples of 40 and 25 respectively, but those are historic ratios, and so need to be measured against Borland’s current rating of over 60.
Astonishing US demand
Borland supporters will now be hoping that the terrific start to the present year will be maintained – up to last Friday, 83,000 copies of Turbo C and 50,000 of Turbo Basic, which has, according to chairman Phillipe Kahn, captured over 50% of the US Basic market, had been shipped – and that the American purchasers will appear from July 3 when the SEC’s year-long restrictions on US citizen’s buying comes to an end. Jane Anscombe reports an astonishing demand for prospectuses from the US, but expected foreign buying doesn’t always materialise judging by British Telecom’s share performance in recent days after the continued absence of the Japanese became apparent. Turbo C and Turbo Basic will shortly be joined, assuming no repeat of last year’s delays to new products, by Sprint: The Professional Word Processor; a new version of Turbo Pascal; Sidekick Plus, which is launched today; and several other unannounced packages. Further boosts to revenue should also come from the recently-established and already profitable UK and French subsidiaries. Currently only 20% of Borland’s business comes from Europe, up from 7% last year but still leaving room for major growth. Growth could well also come from the further sale of rights to ‘software technology’. Semantech has taken rights to a linguistic processor and Borland is also offering licences to a software emulation which allows the new IBM Personal System/2 machines to run programs, such as Lotus 1-2-3, which conform to the Lotus-Intel-Microsoft EMS specification. Despite the poor results, the balance sheet looks extremely strong. At the end of the year, cash reserves stood at $14.6m, and, even after $4.5m was spent on land for expansion, now stand at $11m. Borland is obviously overvalued on historic earnings, but as Phillipe Kahn says, people didn’t buy for 1986- 87, they bought for 1987-88. Having made a substantial profit on the 125p Borland came to the market at, or, indeed, the 95p the shares reached soon after the first of Barclays’ revisions, investors may want to take the money and run elsewhere unless they fancy a roller-coaster ride to better things.
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