FT.com / Companies / IT - Subprime boost for Autonomy

FT.com / Companies / IT - Subprime boost for Autonomy

Subprime boost for Autonomy
By Maija Palmer, Technology Correspondent

Published: October 24 2007 03:16 | Last updated: October 24 2007 03:16

Mike Lynch, chief executive of Autonomy, said the search and archiving company could see a boost to business next year if financial services groups started facing litigation over their exposure to US subprime home loans.

The company provides software that helps companies retrieve e-mails and other electronic records and said its systems were often used by companies preparing for lawsuits. Autonomy increased its exposure to the legal market earlier this year with the $375m acquisition of Zantaz, which supplies nine of the world’s top 10 law firms.

Mr Lynch said the company had won new customers “all along the financial services chain” who were preparing for litigation related to the subprime problems. The company also supplies software to the New York Stock Exchange and the Serious Fraud Office.

“It’s an ill wind that doesn’t blow someone some good,” said Mr Lynch.

However, shares in Autonomy fell 44p to 911p as it reported third-quarter results in line with estimates.

Revenues were up 49 per cent at $89.6m for the three months to the end of September, while pre-tax profits rose 38 per cent to $18.3m.

Roger Phillips, analyst at Evolution Securities, cut the stock from “add” to “reduce” and said: “There were no horrors in this. Autonomy have repeatedly beat expectations and this time they are in line. But the stock is just too expensive – to maintain the valuation you need constant outperformance.”

Autonomy also announced the acquisition of Meridio for £20m ($40m) in cash and shares.

FT Comment

●Autonomy shares have doubled over the past year and trade at 50 times this year’s earnings estimates – well above the rest of the software sector. It is natural for the market to worry about whether this is justified and panic at any sign of weakness. Autonomy’s revenues rely on selling big licences to big companies and this may slow in a downturn, while eventually it may face market saturation. However, there is little sign of that yet and in spite of there being little in the latest results to propel the shares higher, Tuesday’s correction looks overdone.

Copyright The Financial Times Limited 2007