Fair shares for IT distributors?

As stocks decline, Simon Robinson looks for the cause.

PCDEALER INVESTIGATION

obinson looks for the cause. When stock market sentiment turns sour, the first to suffer are small companies, especially those operating in what are seen as 'risky' markets, as institutional investors abandon their positions and money floods into blue chip companies.

Unfortunately, IT distributors fit that description and many have taken a hammering in recent weeks as the markets reacted to the prospect of a worldwide economic catastrophe.

But has a mass sell-off of IT distribution stocks been part of the overall market correction, or is the cause of decline rooted in problems specific to the sector?

In short, has the market lost confidence in distribution?

ILION

The fall in Ilion's share price over the past year has been spectacular, down from about 420p last summer to around 75p.

Julian Morse, analyst at Ilion's broker Beeson Gregory, said: 'Ilion is having a nightmare. Its shares are performing badly as investors have lost confidence in the company. Its cash position is still a worry, as is its working capital. However, it is still making money and is well placed now with (chief executive) Wayne Channon at the helm. Exiting the German market was a good decision and I see its problems as short term.'

DATRONTECH

Following Datrontech's flotation in summer 1995, its shares soared to more than 300p by early 1996, only to endure a steady decline ever since.

They now stand at about 40p.

Analyst David Reece at Datrontech's broker Panmure Gordon says: 'Its problems are largely due to huge deflation in the memory chip and components market, which have hit profitability significantly. But the market hasn't lost interest.' Morse added: 'It should have had more contingency in place before the downturn.'

NORTHAMBER

Since hitting a low of less than 30p in early 1994, Northamber climbed steadily for about four years, peaking around the 270p mark earlier this year and now standing at about 182p. The distributor has not been unscathed by gloomy market sentiment but appears to have avoided any mass sell-off.

This has resulted from a general market perception that Northamber is a well-managed company that has consistently taken market share from its rivals. Chief executive David Phillips' ownership of more than half of the shares, together with acquisition speculation, has also helped keep the share price healthy.

AZLAN

Azlan has taken a battering since it reinstated its shares on the London Stock Exchange in October 1997, following a four-month suspension for financial irregularities. From a high of about 270p in mid-1996, Azlan's shares have traded between 40p and 70p since October. Despite comprehensive restructuring, Azlan shares continue to hit more lows.

One City trader said: 'Certainly this is a sector that is out of favour at present. Azlan's shares are at a tempting price, but I would like to see the outcome of its restructuring before making a move.'

A representative of Azlan's broker, Warburg Dillon Read, refused to comment.