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The Money Programme Saturday, 11 March, 2000, 12:12 GMT
More 12/03/2000

Money Programme Technological Bandwagon
Money Programme Technological Bandwagon

The High Technology Bandwagon

A profound change has come over the London stock market in the last six months and it has potentially important consequences for all of us. During that time, the so-called TMT sector of the market - that's telephones, media and technology - has risen by 80 per cent, while the rest of the market has fallen by 15 per cent.

The investment managers who look after most of our pensions and savings have been climbing aboard a metaphorical bandwagon. Last Monday some of them got to see a bandwagon for real, as The Money Programme took it's 'Technology Bandwagon' round the City. It generated lot's of interest on the streets!

Money Programme Technological Bandwagon
Money Programme Technological Bandwagon

The changes that the Technology Bandwagon represents are important in places far from the London stock market. The city of Hull has seen both a major winner and a major loser.

Kingston Communications, the local telephone company, came to the stock market last summer with the shares sold at 2.25. Since then they have gone up by 500 per cent, giving the company a market value of over 5 billion and a place in the hundred share index (which is based on a company's valuation by the stock market).

Nils Blythe at Kingston Communications
Nils Blythe at Kingston Communications

Much of the stock market excitement has been generated by Kingston's pioneering work in inter-active television. Kingston are offering customers a service which provides internet access and video-on-demand via ordinary telephone lines connected to a television set in the subscribers home. At present the service has only a few hundred customers but they have high hopes that their technology can be used elsewhere. 'It's a revolutionary new development with potential application to millions and millions of customers, not just a few hundred here in the East Riding of Yorkshire', according to finance director Ross Cope.

The stock market clearly sees great potential in Kingston, although last year's profits from ordinary activities run to a modest 15 million per year. But investors are less enthusiastic about companies from the 'old economy'. Last week nine of them were dumped from the FTSE hundred share index, including well known names like Whitbread, Scottish and Newcastle and Hanson. These are all companies which made profits of over 300 million pounds last year.

In Hull, the other main company with its shares quoted on the London stock market is Northern Foods, which specialises in making ready meals for retailers like Marks and Spencer and Tesco. But along with many other well established companies it has seen its share price fall dramatically over the last year. 'It is a bit bizarre', says chairman Lord Haskins. 'They (Kingston Communications) make 15 million of profit and their stock market value is 5,000 million. My company last year made 95 million of profit and our stock market value is 550 million.'

Northern Foods HQ, Hull
Northern Foods HQ, Hull

Low share prices are damaging to traditional companies because they make it difficult for them to retain and motivate staff and they would make it hard for the company to raise new capital. They can also make businesses vulnerable to take-over.

The very different valuations which the stock market now attaches to 'old economy' companies and those related to the internet worries some experienced City observers. According to David Manning of Foreign and Colonial, 'in my career I've seen extremes but not as great as this. You have to go back to Wall Street in 1929 to see the sort of feeding frenzy that's going on and the total ignoring of fundamental investment considerations.'

But the stock market enthusiasm for high tech shares - and relative dislike of traditional companies - is endorsed by Peter Bradshaw, internet analyst at Merrill Lynch. The stock market 'is moving away from stagnation and towards growth'. Investors 'are acting rationally. They can see the future and they want to put their money there.'

Nils Blythe
Reporter

Links to more The Money Programme stories are at the foot of the page.


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