Software group Autonomy shot to the top of the FTSE 100 loser board on Wednesday after upsetting investors with a disappointing third-quarter trading update. Chief executive Mike Lynch told the City that difficult trading conditions meant its full-year revenues would be around 3 per cent below consensus forecasts. The company now expects growth of 17 per cent, or 12 per cent once acquisitions are stripped out, and year-on-year profit growth of around 20 per cent.
The shock news sent shockwaves through the market and saw the shares plunge more than 20 per cent at one point before recovering some poise. Analysts immediately took the red pen to forecasts, with David Toms of Numis assuming that Autonomy’s current troubles will flood into 2011, prompting him to strike 11 per cent off his 2011 revenue forecast and 22 per cent from earnings. He slashed his price target from 1,780p to 1,290p.
But Panmure Gordon analyst George O’Connor, argued that, “the end of the fourth quarter is a long way off and software is typically sold at the end of the period". Mr O’Connor trimmed his 2010 full-year EPS estimate by 5 per cent to 73.5p but resisted fiddling with his 2011 numbers given the lack of visibility at present.
Autonomy’s longer-term prospects could depend on acquisitions. Having built itself an impressive market with business customers, it wants to break into consumer markets. Such a strategy is widely supported by investors but given existing pressure on consumer spending and a possible lack of appetite from takeover targets for Autonomy’s sold down stock, pulling off an acquisition could prove difficult in the short-term.
