It might be tempting to link the performance of two companies - CBT, the Irish software company whose shares slumped from $60 to under $10 in just three weeks, and Stentor which saw its shares plummet from 26.5p sterling to a low of 3.5p before closing at 12.5p on Friday, having been as high as 195p. However, they are like chalk and cheese. Both are technology companies but that is where the similarities end. CBT was already a well established company before it gained a share quotation of the high-flying Nasdaq market in the US. With a prospective p/e of more than 70p the shares had oodles of gloss. However, gloss is like floss. An ill wind can blow it all away, which is what has happened. It will take more than the return of the founder, Mr Bill McCabe, and the ousting of the chairman and chief executive, Mr Jim Buckley, and its chief financial officer, Mr Richard Okumoto, to renew confidence. Shareholders will want answers to two fundamental questions. First, how did the market, two weeks ago, suspect that the third quarter figures would be below expectations when the company was implicitly denying it, only to admit it two weeks later. Second, why did Mr McCabe sell some $39 million worth of CBT share over the last year?
CBT has now admitted that the third quarter figures, out later this month, will show sales of some $35 million, a rise of 15 per cent, but well below expectations. The sale of the shares did not take place before the poor results. Indeed, CBT published record results after the sale of the shares. However, such a sale creates a negative perception, which badly needs to be erased.
CBT's fall from grace is lamentable as it has been perceived as the father figure for budding technology companies viewing a share quotation on the Nasdaq as a worthy goal. CBT's experience should not deter them as this route is still is, and will remain, a worthy one.
Despite the traumas, CBT still appears to be a sound company. It has recorded 14 straight quarters of positive earnings growth. The prospective p/e is now down to around 11, an exceptionally low rating for the Nasdaq, but then there are fears that there may be further negative news from the company, including the planned litigation from US investors. Stentor was founded by Mr Patrick Cruise O'Brien and has its shares quoted on the London Alternative Market. It aspired to have a quotation on Nasdaq - it never made it nor is it likely to. Indeed, as has been highlighted, its grim financial position gives it just two alternatives - liquidation, or a takeover. The grimness of its position can be gleaned from the results published last week. These show losses of £6.7 million in the year to March 31st, 1998, and shareholders' funds of £1.5 million.
However, a subsidiary table shows losses of £5.4 million in the five months to the end of August and a deficit of £3.9 million in shareholders funds. It is hopelessly insolvent and the financial position must have deteriorated since then. In the absence of a takeover, the directors would be obliged to put the company into liquidation, otherwise they could be held personally liable for the group's debts.
Loans of £6 million were due for repayment last Wednesday. Considering its financial position, it is unlikely that these have been repaid. Stentor has been a great disappointment, never living up to its promise. It has given the impression of hobbling from one crisis to another, promising mergers which have never materialised, and suffering from share suspensions. Shareholders who participated in last year's placing at 140p per share must be particularly aggrieved.
However, it was a start-up situation and it has some saleable assets. These include licences, inter-connector agreements and its customer base, which includes some major companies such as GE Capital. However, although monthly revenue is running at £400,000 per month, this is insufficient to meet costs. The company is planning to discuss its perilous financial position at its annual general meeting in three weeks time. A deal will have to be sorted out well before that. Indeed, if the deal it has agreed with a suitor is not completed within the next few days, it will be a yesterday's company. Moreover, even then, the shareholders will have taken a bloodbath.
