This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
By
Why the fuss?
So what has caused the tremendous growth in the company's share price? Infobank are involved in the world of e-commerce. Their particular focus is on business to business transactions. In a recent seminar the company's chief executive, Graham Sadd, introduced this market as 'the fastest-growing market in the world -- ever'. A bold claim, but there are some pretty impressive numbers to back this up. Warwick Business School believes that global business to business electronic transactions will grow from $50 billion in 1998 to $1.5 trillion by 2003. That means that the market will, on average, double each year for the next 5 years.
Businesses around the world spend lots of money on buying goods and services. A lot of this process is routine such as filling in order forms and getting them approved. This is all very tedious and costly stuff. The boys and girls at Warwick think that two-thirds of the costs of ordering goods can be eliminated by using electronic methods. In fact it sometimes costs a business more to order a low value item than the product is actually worth.
This is where Infobank fits in. Their software product, InTrade, seeks to automate the routine purchases of low value items made by businesses, such as stationery and office software. The idea of business to business e-commerce has been slow to take off in Europe. As you would expect, the US has stolen a lead. Part of the problem lies in the fact that both customers and suppliers need to install the software and buy in into the concept for it to get established. Infobank believes that perceptions are changing rapidly and that large companies, looking to cut their costs, will insist on their smaller suppliers supplying goods electronically, causing a domino-like effect throughout the economy. The drive by companies to cut costs doesn't grab the headlines like it used to, but management teams around the world are always on the look out for ways to boost their bottom line.
The competition and some numbers
But given such an opportunity, who else is trying to muscle in on this territory? There don't seem to be too many players. The major ones appear to be Ariba (NASDAQ: ARBA) and Commerce One (NASDAQ: CMRC). Both of these companies floated in the summer of 1999 and they both have seen their market values soar to over $10b. That's despite the fact their revenues for the first nine months of this year were $45m and $17m respectively. For some reason their message boards on the US Fool are very quiet compared with our board for Infobank.
Infobank is now valued at £740m. However, it did issue a large amount of convertible loan stock last year as well. Convertible loan stock is essentially a form of debt that can be converted into ordinary shares. If all this loan stock was to be converted into ordinary shares, Infobank would be valued at nearer £850m.
Now given that Infobank's revenues from e-commerce products totalled some £21,000 in the six months to June 1999, this valuation seems pretty juicy. In fact it represents a price to sales multiple of 20,000, which has to be some sort of record. So it is fair to say that Infobank's shareholders are expecting some fairly hefty growth. Infobank's revenues for 1998 came in £38.7m, but this all came from a software reselling business that was disposed of in November. Although the US competition has stolen a lead in terms of revenues their approach seems to be targeted towards the US market whereas Infobank's system, having been developed in Europe, is reputedly more flexible in that in can deal with multi-currency transactions.
Deals, deals, deals
The last few months have seen a stream of announcements that have helped boost interest in the company. They have signed distribution agreements for Germany, Australasia and South Africa. They also have agreements with companies such as British Telecommunications (LSE: BT.A), Banner Business Supplies (formerly known as the Stationery Office) and ICL. Another partner is Compaq, who implemented InTrade at National Power (LSE: NPR) resulting in a reduction in the cost of raising a purchase order by 80%, or £50 per order.
One thing I have not been able to establish is exactly how Infobank's revenues will be generated. By this I mean: will they get money for installing the initial product and producing upgrades, or will they get a percentage-type fee for each product sold using their system? The latter would look to be preferable as a long-term source of revenue.
Closing thoughts
All the positive news flow and endorsements from firms such as Microsoft (NASDAQ: MSFT) can only carry the firm so far. I have been following the company for three years and revenues from e-commerce have always seemed to be just round the corner. The developments over the last six months seem much more substantial but, in my opinion, the company now has to start delivering and show some solid returns in the form of revenues and profits.
In some ways comparisons can with drawn with another favourite of the message boards, Baltimore (LSE: BLM). Both are involved in technologies that are forecast to grow rapidly over the next few years. And both have a couple of larger US rivals to contend with. What do you think about Infobank's prospects? Let us know on the Infobank message board.
Related links