Here come the nasty guys....
September 21, 1999 19:30
FOCUS-Corel shares rocket on signs of success
(All figures in U.S. dollars unless indicated)
By Susan Taylor
OTTAWA, Sept. 21 (Reuters) - Fueled by surprisingly strong results and advances in the red-hot Linux sector, shares in software developer Corel Corp. roared higher on Tuesday, but analysts were asking how long the rally could last.
Shares in the Ottawa-based firm peaked at C$15 on the Toronto Stock Exchange before settling back to close at C$12.60. The C$2.40 gain -- an increase of 23.5 percent -- came as more than 5.7 million shares traded hands, making it the most active issue.
On Nasdaq, the stock touched an intra-day high of $10-3/16 before closing at $8-1/2, a gain of $1-9/16 or 22.5 percent, on 23.5 million shares.
Those values blast past the previous 52-week highs of C$10.50 in Toronto and $7-2/16 on Nasdaq.
"It's the momentum play," said one market watcher who asked not to be named. "It is a dog company, it was managed poorly, it was in the Microsoft space -- but it was C$2 last year and it's C$10 now and you don't get that with Nortel."
The gains come as Merrill Lynch Canada upgraded its long-term rating on Corel to accumulate from neutral, although its short-term rating remains at neutral.
Corel also announced on Tuesday that it is testing its desktop version of Linux, an open source operating system that is seen as a competitor to Microsoft Corp.'s Windows NT.
Analysts and market watchers say the massive stock movement stems from enthusiastic retail investors, who represent the bulk of Corel shareholders.
"What you've got going on are, I think, a lot of retail people who are being probably excessively excited," said Duncan Stewart, fund manager at Tera Capital Corp. in Toronto.
"What goes up must come down...(they) will tend to enjoy extended periods of retail fervor and at some point they will again connect with reality. But there is almost no way of telling how
long that period is."
Corel's strong market showing follows a third-quarter profit of 26 cents a share released on Monday. That exceeded expectations of 10 cents to 11 cents a share.
Corel added 9 cents per share to its operating results of 17 cents per share from a onetime $6.3 million settlement with the Canadian government over a contract it said unfairly favored Microsoft.
"I was looking for revenues to be somewhat higher. I was at $75 million and they didn't make that," said Jean W. Orr, analyst at Nutmeg Securities Ltd. in Westport, Connecticut. "I would have liked to have seen them a bit higher, but I understand that they wouldn't have explosive growth in the quarter."
Orr is optimistic fourth-quarter sales will surpass the $71.3 million recorded in the third quarter, although other Corel watchers suggest that will be a struggle.
"My view of those results was, in fact, more negative than before we went into them," Stewart said. "I think they will have difficulty beating $70 million next quarter. There's no growth here -- this is a zero growth story."
While analysts are encouraged that Corel has a tighter lid on expenses, with notably lower advertising and research and development costs, they are worried the Linux fervor may fizzle.
"The thing that concerns me probably most right now is the enthusiasm for Linux and the fact that we're not really going to have the distribution (operating system) ready to ship until November, maybe even December," said Orr.
"And they won't have their applications ready -- which is where I really expect them to make their money -- until the February time frame. So I worry a little bit that the enthusiasm for Linux
may expect too much too soon."
Corel announced on Tuesday it has struck research and development partnerships for its Linux efforts with Royal Philips Electronics NV Speech Processing , Loki Entertainment Software, Webb Interactive Services Inc. , eFax.com Inc , and GraphOn Corp.
"They're ignoring the important salient facts here," said Stewart of investors. "Linux looks interesting but a: I don't know how they make any money at it and b: they're not even the world leaders at it."
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