OUR TIP in March to buy shares in DCS, the software group, hasgone spectacularly wrong. A shock profits warning, in the wake of anbullish statement from the chairman just seven weeks ago, wiped 30per cent from the shares yesterday.
DCS produces supply chain management software for multinationals,links car manufacturers and dealers via the web and installs backoffice IT systems. After several quarters of impressive growth, itnow says a pick- up in demand following the Y2k-related IT spendingfreeze has been slower than expected.
Perhaps the chief executive, Tim Robinson, can now discern thefaint rumble of the tumbril. He says DCS made its bullish May tradingstatement - citing rapidly growing demand - as it was pitching forcontracts it expected to win. As it happens, it did not secure asmany as it hoped, especially in back office applications. That had aknock-on effect on demand for DCS's more sophisticated internetservices.
His excuse is that companies have become confused about thecommercial returns afforded by overhauling IT systems to connect tothe web. True, but it appears DCS has at best been gambling withexpectations. It is hard to see how it could reasonably say sevenweeks ago demand "is growing rapidly, especially ... Web solutions",words yesterday speciously paraphrased as "indications of demand pick-up".
On analysts' revised forecasts of pounds 6m in pre-tax profits andearnings of 14.1p per share, down from pounds 11.5m and 33p, thestock, down 167.5p at 387.5p, trades on a forward multiple of 27.Investors should consider reducing their holdings.
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