Gaming at the Internet Monte Carlo: France's High Fliers
Vivendi looks set to gain on direct and peripheral benefits to properties!
FEATURE-Risk rivals reward on Paris Internet casino
March 1, 2000 1:01am
Source: Reuters
By Matthew Green
PARIS, March 1 (Reuters) -- Picking a winner from the ranks of France's young Internet firms could yield rich rewards for investors keen to take a gamble.
But analysts say that for every undiscovered gem, many companies will sink without trace as France's Internet sector matures and competition for capital tightens.
``It's a complete casino -- it's dangerous, but you've got to be in it,' said Jean Dezombre, director of Natexis Capital.
However hazardous, the Paris Nouveau Marche for high-growth stocks thinks it is worth the risk and hopes to float 100 mainly hi-tech firms this year to lure new investors dazzled by triple-digit share price rises.
On the day of their initial public offering (IPO) in January, the stock of both the auction information firm Artprice.com and Internet audience measurer NetValue went through the roof. Artprice.com's IPO price doubled on the day and NetValue's tripled.
MEDIA DARLINGS
Reaping lasting rewards may well hinge on buying shares in companies poised to exploit a growing demand for hi-tech entertainment content from Europe's telecoms giants.
Internet ventures can draw inspiration from pay-TV company Canal Plus, a star performer on the Paris blue-chip CAC-40 index.
Canal Plus shares have risen around 70 percent since its parent, French conglomerate Vivendi, unveiled an Internet deal with British telecoms firm Vodafone AirTouch in late January.
Analysts said the deal typifies a growing trend for telecoms firms to seek media content to attract customers to Internet services accessible by cellphone, computer or television.
``All the companies with content will be in fashion,' said a Nouveau Marche technology analyst who declined to be named.
BARGAIN BASEMENT
Investors looking for content providers may find bargains on the Nouveau Marche.
Analysts said leisure software companies like Titus Interactive and Guillemot, or digital special effects firm Duran Duboi, were cheap in comparison to European peers.
Valuing such firms of the ``new economy' of media, telecoms and the Internet, where investors are betting on future profits, requires new measures of performance.
For companies where profit-based evaluations are difficult, analysts often use the ratio of enterprise value (EV) -- market capitalisation plus debt -- as a multiple of sales.
The technology analyst said Titus Interactive trades on a discount compared with Paris Bourse rivals, with a projected EV/Sales ratio of 1.3 for 2001 compared with Ubi Soft's 4.6 and Infogrames Entertainment's's 4.0.
``I'm not saying the stock is going to rise by 50 percent -- the management still has to show the market they can deliver,' the analyst said.
LEADERSHIP FLAIR AND ROSE-TINTED SPECTACLES
Trusting the management is a rule of thumb in a market where analysts say valuations look bizarre by the standards of traditional financial logic.
``You've got to look the management in the eye and think these people have got a good idea and they know how to commercialise it,' said Anthony Parker, director of European equities at Dresdner RCM.
For companies like NetValue that have no profits to measure, analysts often look for a low ratio between a firm's share price and its sales to spot stocks with the potential to rise.
NetValue has a price to sales ratio of 1081, by far the highest in a sector where most companies register single figures, according to Reuters Securities 3000.
Artprice.com weighs in at second place on 435 -- ringing alarm bells among analysts who say it could take a year for Internet euphoria to subside and investors to learn to take a hard-headed look at business plans.
Such valuations are causing serious concern among more conservative investors who still look at the fundamentals.
``Everyone puts Internet firms in the same basket -- they are almost all overvalued,' said Laurence Tahri, Internet and video games analyst at Meeschaert Rousselle.
The Nouveau Marche index has gained more than 100 percent since the beginning of this year, in sharp contrast with the virtually flat CAC-40, raising fears of a collapse.
Heightening that risk is the fact that the six biggest companies of the 113 listed on the Nouveau Marche account for about half of the market's capitalisation of just over 20 billion euros ($19.40 billion), leaving the whole index vulnerable to a sell-off in just a few firms.
``What worries me is that six months from now investors could wake up to some nasty surprises,' Tahri said.
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