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 Rob Davies (TMFEssex)
Last night in New York IBM (NYSE: IBM) shares fell $15 to $91, wiping $37b from its market capitalisation. How can such a large and well-known company be suddenly worth so much less? The answer is that the company said that sales were slowing as buyers deferred purchases until next year because of Y2K fears.
In my view, fears of millennium problems are grossly over-hyped and will not cause any major incidents. Nevertheless, it is quite understandable that anyone making a big purchase might want to delay until next year to be on the safe side. Whether that fully explains the 40% decline in mainframe sales is a moot point. Microsoft said that PC sales were amazing in its recent results statement and my guess is that the small mammals (PCs) are inexorably making life more difficult for the dinosaurs (mainframes). The trend to networks, Communicators and Smartphones can only increase the pressure on Big Blue.
That doesn't really concern us here. What I want to focus on is how Y2K will affect the shares in this portfolio after seeing the damage done to IBM. So let's go through them one by one.
Dell (NASDAQ: DELL) is being affected by many factors at the moment. The main ones are rising prices for memory chips and booming demand for PCs as Microsoft has already mentioned. On top of that is the threat of the Internet going wireless but that, and the other issues, has nothing to do with Y2K. I suppose that consumer spending this Christmas could be bigger than average, especially as 90% of the world's population lives in the Northern Hemisphere and will basically have 10 days at home with in-laws when it is cold, dark and wet outside. Wouldn't that just be a brilliant time to explore the Internet? To do that you need a PC, and Dell must be the favourite brand. It wouldn't surprise me to see a bumper Christmas sales season for Dell this year and that can only be good news for the stock. OK, there might be a bit of a hangover next year but I doubt that it will negate the boom preceding it.
Emap (LSE: EMA) is a large publisher of special interest magazines. Although people will have a lot of spare time over the holiday I doubt that they will spend much time reading magazines. I should think the Radio Times and the UK Investment Workbook will be the most popular reading material at most UK houses at the end of December. As travel through railway stations and so on will shrink over the period, impulse sales will probably drop, but I wouldn't think much more than normal at that time of the year. Overall, the holiday won't be great news for Emap, but it won't be bad news either.
Independent Insurance (LSE: IIG) might be more exposed to millennium events. The company claims that it is fully prepared for Y2K on the systems side. But the risk for an insurance company is some event caused by a malfunction elsewhere. For example, 41.7% of IIG's business is Commercial Liability and a further 20.5% is Commercial Property. If a fire extinguishing sprinkler system went off at 00:01 on January 1st 2000 it could wreck an office, stocks and computer systems. That would be expensive. It is possible to think of 1001 events that could go wrong as the electronic counters tick over onto a row of noughts (incidentally, you do know that the next decade will be known as the Naughties, don't you?). But my guess is that it won't happen. Certainly, if things do go wrong then the insurance companies will be the ones to be hurt most. And hiding behind Y2K disclaimers will simply boost lawyer's incomes. So, a bit of question mark against Independent.
Software company Misys (LSE: MSY) has already suffered from a decline in millennium business and the share price is languishing at 438p after peaking at 739p last year. Business will undoubtedly pick up after the new year, but probably at not such a dramatic rate. There may be a slight danger of a midnight glitch in some of its software causing a problem for customers. How exposed Misys would be is unclear. But, again, I doubt that it would suffer overmuch. With a P/E equal to the market average of 26, Misys is probably reasonably valued for the medium term after over-discounting Y2K.
PizzaExpress (LSE: PIZ) must be in line for a bumper session over the holiday. But will they have to pay through the nose to get staff to work those days? Unemployment in the UK is now only 5.9%, so the casual labour market can afford to be choosy where it works. After paying premium wages it is unclear whether PizzaExpress will be a net gainer from the whole affair. But it is certainly prepared. The company has sent questionnaires to all third party suppliers and all managers have been asked to arrange three alternative supply sources.
However I have no doubt that one company will clean up over that period. Rentokil Initial (LSE: RTO), with its myriad of support services to commerce, will be in huge demand over that period. The company is already renowned for its steep charges, and a tight market over the holiday period ought to enable them to charge like wounded bulls, albeit only for a limited period. Sure, a tight labour market will hit them too, but if they can't pass on those costs to the customer then Sir Clive Thompson is not half the businessman he makes out to be. Their business mix of contract and temporary staffing, hospital services (how many drunks will be in casualty that fortnight?) and so on must be a no-brainer.
On a more sober note, Unilever (LSE: ULVR) will probably experience little difference in trading over the period. In fact you could argue that its substantial overseas, and non-Christian, exposure gives it a higher degree of isolation from the holiday business conditions than most.
Finally Lloyds TSB (LSE: LLOY) is probably the scariest one of all. If all goes well they will sell shed-loads of cash from their ATMs. If it goes pear-shaped it could be very ugly indeed. All we can do, as shareholders, is trust and hope that management has made the right decisions.
In the end that is what investing is all about. Trusting management to run your business properly. Whatever else, history tells us that the management of all the companies in the Qualiport have a good record of delivering that, despite the verdict currently implied by some of the share prices. Tell us what other effects the millennium might have on the Qualiport that we may have missed on its very own message board.
Company Change Bid DELL(US)-2.80 38.40 EMA -0.25 7.84 IIG +0.10 2.60 MSY -0.06 5.03 PIZ 0.00 8.20 RTO -0.01 2.05 ULVR +0.02 5.42 LLOY +0.04 7.46 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 04/11/98 245 Pizza Exp 7.93 8.20 3.5% 27/10/98 1133 Indep Ins 2.60 2.60 0.0% 29/09/99 356 Lloyds TSB 7.56 7.46 (1.3%) 22/04/99 348 Misys 5.76 5.03 (12.7%) 27/01/99 74 Dell (US) 44.63 38.40 (13.9%) 19/12/97 783 Rentokil 2.55 2.05 (19.6%) 17/07/98 266 Unilever 7.53 5.42 (28.0%) 17/04/98 169 EMAP 11.34 7.84 (30.9%) Last Rec'd Total # Company In At Value Change 04/11/98 245 Pizza Exp 1966.34 2009.00 42.66 27/10/98 1133 Indep Ins 2990.63 2945.80 (44.83) 29/09/99 356 Lloyds TSB 2723.20 2655.76 (67.44) 22/04/99 348 Misys 2028.71 1750.44 (278.27) 27/01/99 74 Dell (US) 2007.42 1722.18 (285.24) 19/12/97 783 Rentokil 2046.53 1605.15 (441.38) 17/07/98 266 Unilever 2052.00 1441.72 (610.28) 17/04/98 169 EMAP 2341.32 1583.68 (757.64) Cash: £1,692.27 Current Total : £17,406.00 Total Invested: £20,184.62 Profit/(Loss) : (£ 2,778.62) Value Per Share Day Month Year Qualiport -0.83% -4.67% -17.58% FTSE 100 0.22% -0.38% 2.11% FTSE All Share 0.17% -0.78% 4.87%