Europe’s only home-grown fault-tolerant minimaker ITL Information Technology Plc will finally make it to the Stock Exchange full list this week over a year after it was originally scheduled to arrive. The delay has allowed ITL to come to the market fresh from a 12-month period that saw pre-tax profits rise by 75%, whereas if it had made its bow last May as intended, it would have been able to report only a 16% increase. The dramatic rise to UKP2.57m pre-tax, from UKP1.47m in the year to March 1986, was due to the company’s decision in early 1986 to withdraw from the office workstation market in which it had made several unfortunate acquisitions in the early 1980s. As a result, ITL’s turnover in 1986-7 came principally from two sources: the turnkey projects and customer support Professional Services division and the Momentum minicomputer division. Each area produced around 40% of ITL’s UKP32.1m turnover, with the Cablestream broadband local area networking system contributing all but 6% of the rest. The directors say that the current year has started well with orders, gross margins and trading results substantially ahead of last year despite a weaker than expected performance from the Cablestream product. As with ICL, though, the dependence on the public sector for clients means that while overheads are comparatively steady throughout the year, profits only come through in the last quarter. Remembering the recent Fletcher Dennys experience when expected local authority orders failed to materialise may give potential investors sleepless nights. And they are likely to be worried further by the fact that ITL is heavily dependent on existing customers for its business. Most companies are pleased to gain 70% to 80% of their revenue from old clients, but it ITL’s case the figure is over 90%. Obviously, that is a plus as well as a minus as the same customers keep coming back for more. ICL, which still uses the Momentum as a front-end processor for its ME29 and Series 39 mainframes, currently accounts for 12% of turnover and British Telecom, which also resells the Momentum, for 14%. On the plus side, over 50 impoverished National Health Service hospitals use ITL computers and are therefore locked in it ITL’s software so that it will be cheaper to continue to upgrade their existing kit than think of converting. In total, ITL has sold 300 Momentum systems ranging in value from UKP50,000 to UKP1m.
Swinging Sixties
Virtually all its business is in the UK and it will shortly have to consider moving overseas. ITL, more particularly under its old CTL banner, as which it was founded by Iann Barron back in the days when he presented himself as a trendsetter of the Swinging Sixties – is so well known that it is difficult to see how the placing of 33% of its shares through merchant bank N M Rothschild & Sons Ltd and brokers Phillips and Drew can fail. Yet, nearly 60% of the shares on offer at 105 pence apiece – to raise a meagre UKP3.6m of new money – are being sold by existing shareholders, and it is understood that management came close to selling the company to a major UK electronics firm during the last 12 months. On the other hand, on an historic price-earnings multiple of 16.2 with reasonable short-term prospects, ITL looks quite cheap. Dealings are expected to start on Wednesday, July 8.
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