The crisis of confidence in global financial markets last week left many tier-two service providers staring at massive cuts to their market value. But despite the setback, most remain confident in their underlying performance and customer spending projections. Fears of a US recession sparked a domino effect across financial markets in the US, Europe and Asia last week as investors scrambled to sell stocks. At its height last Tuesday, the panic saw Australian stock market value drop by seven per cent in one day to its lowest level in over a decade.
Like those in other industry sectors, IT companies saw their market value plummet, with many experiencing double-digit percentage losses. Those hit included UXC, ASG, Oakton, Melbourne IT, Commander and Data#3. Despite this worrying trend, SMS Management and Technology director of corporate development, Merlin Allan, insisted its fundamentals remain sound. Since the start of the year, its share value has fallen from around $7.60 to $6.30 at the time of press (January 25).
"We are worried in the wider sense, but we don't see this having an impact on our core business. We are a 22-year-old firm and we've seen turbulent times before. We are careful about analysing our details and we're comfortable we are in a solid position," he said. "Our dividend payouts have always been strong - our view is that the investor community derives comfort from that consistency and major shareholders will continue to follow us."
Allan said market changes were being driven by sentiment and did not reflect the fundamental value of listed IT companies.
"We are minnows in the sea. Like every public company in our sector, we are geared to the stock price so we will work hard to improve that, but you can't fight sentiment in the market," he said.
With a significant proportion of revenue coming from long-term customer contracts, ASG chief executive, Geoff Lewis, was confident it could withstand fluctuating market conditions better than most. ASG's shares were trading at $1.35 at the time of press, down from highs of $1.90 in the final quarter of 2007.
"It's not affecting our performance and we remain focused on our pipeline business," Lewis said. "I don't see this as a lack of confi dence in the IT sector - it's a lack of confidence everywhere."
Lewis stood by ASG's revised guidance figures for its half-year to December 31, released late November. The outsourcing company expects pre-tax earnings to rise by 66 per cent year-on-year to $7 million, and is optimistic 2008 will be capped by buoyant market conditions generating strong revenue and earnings.