MARKET COMMENT
CMG - Close To Temptation

By Stuart Watson (TMFTiger)
February 26, 2001

Great Titchfield Street, London -- CMG (LSE: CMG) continued its solid progress of recent years with another good set of results today. Sales increased by 33% to £810m and profit before tax grew by 36% to £117m. Like fellow FTSE 100 constituent Logica (LSE: LOG), much of this growth is being driven by software systems for mobile phones, and in particular SMS systems. In fact if you strip out growth from the telecoms business and from recent acquisitions such as Admiral, sales growth for the rest of the business -- making up two-thirds of sales -- was in the region of just 6%.

That said, considering the recent climate in the industry these are still very good results. CMG has filled its hole in the UK with the Admiral acquisition, although half of its employees are still based in the Benelux countries. Its French and German businesses continue to struggle in terms of profits. With net debt of £188m it still has plenty of firepower if it wants to beef up its concerns in these countries.

However, as with Logica, the only real question is how much to pay for the rosy growth prospects. Current forecasts predict CMG's profit will grow at 20% for the next two years. These companies have come through the recent turmoil very well and these forecasts look as solid as any company on the market. CMG reported growing confidence amongst its customers and it said it expects to continue to grow faster than the industry average, although no figure for this is mentioned.

After a sharp slide on Friday CMG's shares are starting to look reasonable value. Its current valuation of £4.3b represents about 40 times forecast profits for 2001. That's cheaper than the shares have been for a few years. It's still not quite cheap enough for my liking, but it's not that far away.

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