All the vibres auger well for Horizon float

The Irish Stock Exchange will get a welcome fillip this morning when Horizon Technology Group's shares are quoted. There is nothing like a high-technology company to give it a bit of zip, particularly when the market has had to contend with the jaded Eircom.

Following the breakdown of its talks with Eircom, Horizon is fortunate not to be part of that group and is likely to add much more value for its shareholders as a separately quoted company.

The low prospective p/e should ensure a good premium on the placing price of £1.29 (€1.64). Indeed, when compared with the ratings of other high-tech shares, the placing price was too low and gives those selected institutions an in-built profit.

Most of the vibres from Horizon are good. However, there are a number of question marks. First, it is surprising the company did not take the opportunity to raise fresh funds. Instead, the two major shareholder directors are selling part of their holdings - the benefit, therefore, accrues to them and not to the company. Second, the company was in breach of the Companies Act, 1990 in 1998.

The main shareholders benefiting from the placing are Cork born Mr Samir Naji, founder and chief executive, who has sold 4.64 million shares to gain £6 million, and Mr Charles Garvey, group operations director, who has sold 580,000 shares to gain £750,000. The placing document notes, while no new funds are being raised, "it is anticipated that admission (to the Irish Stock Exchange) will provide the group with greater access to capital markets to facilitate its future development, both through organic and acquisition led growth, and will raise the profits of the group and enhance its reputation with clients and suppliers".

Also, the placing and subsequent listing, will further provide incentive to its employees, "thus helping to attract and retain high quality staff".

All very worthy motives but Horizon had cash of £6.94 million and indebtedness of £8.57 million on October 29th 1999, giving it net debt of about £1.6 million.

If it were in a major expansionist mode, it would have taken the opportunity to raise fresh funds to give it that impetus. Its decision not to do so contrasts with ITG, the telecommunications group which recently raised £55 million in a placing of new shares which effectively doubled the size of that company.

The company which has three main divisions - IT training, Internet and distribution - could argue that it generates cash flow of u £3 million, that it has bank facilities of u £12 million, and as a result it does not need funds at this juncture. That could ensure strong growth in the future but it hardly categorises it as a go-go, restless group. Second, the company was apparently in breach of section 32 of the Companies Act, 1990. This arose because Mr Naji had a loan of £354,000 with the company when it had a deficit of £717,000 in its shareholders funds.

Under that act, loans must not exceed 10 per cent of assets. However, since then all these loans have been repaid.

The company appears to have over traded in that year. This was due to a substantial increase in assets - due to an acquisition - and stocks and explains the share issue in December 1998 when it raised £7.4 million (£5 million from Irish institutions and £2.4 million from private investors) in a placing at 78p per share. Mr Naji's stake was reduced from 83 per cent to around 67 per cent. The latest issue will reduce his interest to 58.7 per cent.

It is easy to see why institutions have eagerly taken up shares in Horizon as the trading figures are impressive. Turnover rose from £44.8 million to £151 million over the past two years and "illustrative" projections point to £146.7 million next year. Pre-tax profits rose from £1.39 million to £3.96 million and "illustrative" projections point to £4.8 million this year.

Moreover, the directors, unlike others in some of the publicly quoted companies, are not over paying themselves. Indeed, they are receiving very modest salaries. Mr Naji's salary, for example, is £100,000 per annum with a bonus of up to £66,000. Mr Garvey's salary is £80,000 with a bonus of up to £54,000.

In addition, there is an attractive share incentive scheme for its 261 employees located in Ireland, UK and continental Europe. The employees own 5 per cent of the company and with the various incentive schemes this can be brought up to 15 per cent over the next 10 years. Overall, the company has a happy ring to it.

The initial places at 78p per share - including ICC which owns 4 per cent - have done well on their investments and will do better. At the new placing price of 129p, the shares are on a historic p/e of 23.9, and a prospective p/e of 15.7 which should ensure the shares spurt ahead today.