No nervous nellies needed in technology

By Peter V O'Brien

Friday 8th October 2004

Investors with steel nerves and strong stomachs would be having a nice time with technology-based stocks.

The nervous and nausea-prone should look elsewhere for investment gains.

Price movements since October last year for 18 companies involved in biotechnology, telecommunications and sundry technology are in the table, which includes two more groups (Team Talk and Solutions Dynamics) than were in a similar table in April (NBR, April 8).

The 18 were not exhaustive of companies with technology associations but sufficient to show trends.

Their share price changes for the six and 12 months periods disguised in some cases substantial turnarounds between April and September.

Rocom Wireless' share price, for example, lost 21.4% between October 2003 and April but the massive 136.4% gain since April (admittedly from a low base) lifted the 12 months' improvement to 85.7%.

A similar situation occurred with Cabletalk where the 175% gain since April lifted the October-October change to a plus 9.1% when the movement from October last year to April was a 60% fall.

The table also shows that some companies' gains between October and April were eroded in the ensuing six months while turning in high positive movements on an annual basis.

Finzsoft Solutions, Provenco Group and VTL Group were examples.

Pacific Edge Biotechnology began its stock exchange-listed life from before taking off on the back of promising announcements.

The price gain since April was sufficient to allow the placement of six million shares at 25¢ each in July to raise $1.5 million for research and product development funding.

Pacific Edge's successful placement and general price improvement was summarised in a comment from chief executive David Darling when he said the capital raising was very successful and "identified significant investor interest in the market."

The annual meeting in June was told Pacific Edge had made major developments in products for detecting stomach and bladder cancer.

It was finalising agreements with Japanese pharmaceutical companies and moving to a "new phase" of development where companies would provide substantial funding in the hope of successfully marketing the products.

Pacific Edge's recent share price history would be just a curiously interesting quirk if the company got widespread market acceptance of products for early detection of stomach and bladder cancer.

The share price would be measured in dollars rather than cents.

Other listed biotechnology companies lacked Pacific Edge's price gain success but could still give punters good rewards.

The discussion of the sector on April 8 noted investors in the listed biotechnology groups faced a familiar problem: "They either hold and wait for substantial payoffs, while accepting opportunity cost, quit the stock and/or defer investment until the companies record solid profit."

Biotechnology companies, more than most others grouped under the "technology" definition, are major beneficiaries of the "better mousetrap" and "making two blades of grass grow" phenomena.

Their share prices rocket after announcement of scientific breakthroughs.

Unfortunately they sink when previously promising projects are pronounced deadends.

Investors in telecommunications companies worldwide had a volatile and sometimes disastrous ride in recent years as the operators sought niche markets against numerous competitors.

The six telecommunications companies in the table were not immune from recent share price volatility, although Telecom's size and its status as a market indicator gave the stock relative stability.

Few, if any, New Zealand telecommunications companies are at the technology "frontiers, "unlike biotechnology groups and therefore should (emphasise "should") carry relatively lower investment risk.

The eight companies classified under "sundry" had little in common, apart from bases in technology.

Investors in any or all of the three branches of technology may have to wait for good returns from some companies.

They will never have to wait for stomach-churning share price volatility.

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