CBT feels the full fury of US investors

Irish technology companies aspiring to the Nasdaq market in New York would do well to take note how savagely US investors can treat companies, even the so-called blue chip of the Irish techies, educational software group CBT.

It wasn't that CBT told the market things it didn't like - it was that chief financial officer, Rich Okumoto, didn't address market concerns that slower end-of-year sales in Europe might threaten CBT's profit performance when he spoke at a Nationsbank Montgomery investment conference.

Those sales worries - triggered by a bereavement suffered by a key European executive - were followed by a BT Alex Brown downgrade.

This knocked 25 per cent of CBT's stock market value on Monday followed by another 20 per cent on Tuesday and the net effect was that CBT's share price is now almost half the level of a week ago from close on $60 down to $31 on Tuesday.

Many investors believe that the selling - and huge volumes of shares were dumped earlier this week - is a huge overreaction to the potential lower European sales. But it shows that the US markets have no tolerance of even a whiff of bad news. And the bad news seems to be that CBT is expected only to meet current earnings forecasts of 22-23 cents for the fourth quarter and 89 cents for the full-year, not exceed those forecasts.

CBT has had a history of giving the market pleasant surprises when it comes to reporting earnings, but BT Alex Brown analyst, Peter Appert, in downgrading CBT from a "strong buy" to just a "buy", says that those earnings estimates are unlikely to be exceeded.

Mr Appert said the scale of CBT's business has grown and it has become increasingly difficult for the group to beat investor expectations. "We expect, going forward, that the company will likely focus on meeting, not exceeding EPS estimates," he said.

Needless to say, CBT is not the first Irish company listed on Nasdaq to feel the fury of investors. Saville Systems has already been decimated by lower investor expectations while the recent turmoil in the markets saw Esat rise and fall by 25 per cent in successive days.

Companies can still float on Nasdaq on earnings multiples they could not have dreamed about in Dublin and London. But that facility to raise money relatively cheaply comes at a price.

Perform or else!