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‘Massive deal’ from Autonomy
By Tom Braithwaite and Philip Stafford

Published: April 24 2008 22:21 | Last updated: April 24 2008 22:21

Shares in Autonomy tumbled yesterday despite record first-quarter results and the announcement of a “massive deal”, with Deutsche Bank, as the search software company benefited from the subprime crisis.

Shares in the Cambridge-based company dropped 146p, or nearly 15 per cent, to 844p after it met analysts’ forecasts but failed to trigger the raft of immediate upgrades that some had expected.

Pre-tax profit in the three months to March 31 rose 47 per cent to $23.6m (£12m) on revenue up from $65.5m to $105.1m as it attracted new customers including Barclays Capital and Michelin. Earnings per share rose from 7 cents to 10 cents.

Autonomy’s products’ ability to sort through unstructured data from text to phone calls has attracted customers from governments’ intelligence agencies to banks, looking to beef up compliance procedures and prepare for lawsuits related to the credit squeeze.

Autonomy also announced a deal for compliance software. The deal is with Deutsche Bank, though Autonomy did not name the bank. Mike Lynch, chief executive, said it was “expected to be one of the most significant contracts Autonomy has won” and is worth at least $20m over two years.

“Various sectors shifted spending from general IT to regulatory and litigation- related purchases, making the direct effect of the subprime crisis a net positive for our business,” said Mr Lynch. He added Autonomy would maintain its “conservative view” on prospects.

It flagged that “some customers delay[ed] payments until immediately after quarter end” but said cash collection had recovered. Cash balances rose by $2.9m from the end of the previous quarter to $95.5m; the company is debt free and Mr Lynch said he would consider returning cash to shareholders with $100m “probably the magic number”.

FT Comment
● Following a strong run, yesterday’s 15 per cent drop should bring a more sober aspect to Autonomy’s share price. A prospective p/e ratio of about 30 times earnings was priced to perfection, given its low earnings visibility. In the face of an economic slowdown, upgrades may not appear this year. Until further guidance comes through, shares may be range bound from here.
Copyright The Financial Times Limited 2008