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An industry in recovery mode?
Having been through one of the most extreme boom and bust business cycles, the IT industry is in recovery mode. For survivors of the bear market, the second half of 2004 should see volumes build and past restructuring bear fruit. In the semiconductor industry, consumer spending has driven much of the growth and there is evidence corporate spending is coming back. For instance, across the pond, NASDAQ-traded chipmaker Intel is enjoying margins of 60 per cent, close to its all time high, although the shares have suffered in sympathy with the rest of the sector this year.
In its latest overview of IT Hardware, Arbuthnot argues sentiment will drive sector share prices. In terms of individual companies, the broker says Filtronic is probably worth avoiding, and Spirent 'probably has the least transaction exposure to currency movements' of the stocks it researches. Nevertheless, the techMARK-listed communications technology punt looks pricey on forecast profits of £37 million for December 2004 – the forward p/e multiple is 20 times but Arbuthnot insists the shares are worth holding.
On AIM, Arbuthnot advises buying into the Fayrewood story at 135p. Forecasts for the company are conservative and analyst James Mitchell says there's scope for further upgrades – the forward rating of 10.2 times is undercooked.
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