CBT's transformation into the Internet-based training company SmartForce has triggered a massive share sell-off in the US and wiped $510 million off the market value of the Irish company. The shares plunged from $27.25 yesterday to a low of $14.561/4 in the wake of the announcement yesterday but later recovered to close at $16.621/2. Analysts in Dublin suggest the market reaction to the news has been overly negative, although most expect it will be next year before the share price can stage a sustained recovery. Just over a year ago the company experienced a similar setback with share prices falling from $60 to under $11 in a turbulent trading period. The stock subsequently recovered.
Yesterday's sharp reversal in the company's fortunes is due to investor concerns about the repositioning of SmartForce's training business into an interactive Internet-based concept. The company has explained to analysts that in the short-term the new direction will require huge investment and that in 2000, instead of making profits of around $36 million, it now expects to incur a loss.
The prospect of losses immediately scared off investors who quickly moved to dump millions of SmartForce's shares in New York. During the day some 7.5 million shares were sold with trading volumes so large at one stage that trading had to be suspended. This is the biggest sell-off ever witnessed by CBT which has daily average trading volumes of 487,500 on Nasdaq.
Commenting on the collapse in the share price SmartForce chairman, Mr Bill McCabe, said the group's decision to change its core business strategy had taken the market by surprise.
"Investors on Wall Street clearly don't like surprises." Mr McCabe stressed that despite the current uncertainties, the switch to the new business model will create a bigger and more profitable company in the longer-term.
Analysts in Dublin were surprised by the scale of the share sell-off on Wall Street and most suggest US investors have overreacted to SmartForce's announcement.
ABN Amro technology analyst, Ms Jemma Houlihan, believes US investors have decided to get out of SmartForce now, preferring to wait until it proves itself in its new guise. "The new strategy does make sense but it will probably be next year before there is some improvement in the share price." Ms Houlihan suggests the shares have now hit rock bottom.
Goodbody Stockbroker's analyst, Mr Gerry Hennigan, is also optimistic about SmartForce's long-term prospects. "It's a bold strategy. The company deserves credit for re-inventing themselves at this time."
The Dublin-based analysts are more upbeat about the company's move than their counterparts in the US whose negative sentiment triggered the selling pressures in the market. SmartForce shares got off to a strong start in early trading yesterday buoyed by the better-than-expected third quarter results and it was only after the company began to brief analysts about its new strategy that the shares were sold.
US analysts have great experience of internet stocks but many who follow SmartForce mainly focus on educational and training stocks. In Europe, analysts evaluating SmartForce would tend to have a broader view assessing the stock within the entire information technology sector and this may explain their optimism. All analysts believe that it is now up to SmartForce to allay investor concerns about its future direction.
Yesterday the group unveiled SmartForce e-Learning, which it says will be a faster, and more interactive way of learning through the Internet. It has also announced it will collaborate with Computer Sciences Corporation (CSC), a US systems integrator and technology consulting firm, to develop the next generation of CSC's e-Learning services for its knowledge and learning environment, CSC Sources.
The new strategic development is designed to "stay ahead and thus gain a competitive advantage" said SmartForce. "As businesses and individuals turn more and more to the Internet, SmartForce e-Learning is designed to be the learning solution for the Internet economy".
SmartForce said it will leverage the Internet to pursue two business opportunities. The first is a business-to-business opportunity in which the company will provide e-Learning solutions to organisations, the second being the commercial availability of its e-business application. It plans to open the site to corporate customers on November 2nd.
