SiTech firms buckle under bad news
When the Warsaw Stock Exchange (WSE) introduced the Segment for Innovative Technologys (SiTech) trading index on May 19, 2000, STGroup stock was selling at zł. 19 per share and enjoying strong investor sentiment.
But from last month the IT firms share price was hovering about zł. 1, losing about 94% of its value in the hardest fall for any of the segments 12 original members.
Theres no need to conduct a sophisticated analysis of the last 1.5 years on the stock market to make a statement: it is not good, said Mariusz Kanicki, capital market specialist for the Wrocław-based IT distribution firm. The company hasnt been able to raise capital through new stock issues, bank loans that were guaranteed by shares owned by associated companies had to be paid earlier than originally planned when share value fell and ongoing negotiations with potential investors are more difficult than two years ago, he said.
And money is the blood of the business, especially in distribution, our core business, he said.
Unfortunately for IT firms and investors, STGroup isnt an exception. For all SiTech firms, the numbers tell a sad story. The segments TechWIG index has dropped about 70% since it was introduced in May 2000. Going back a little further, shares have plunged nearly 80% since tech and telecom stocks peaked on March 13, 2000.
Even though the decline started last year, SiTech stocks significantly outperformed the market in 2000, gaining 45.7% while the all-share WIG index dropped 1.3%. But so far this year the SiTech index is off 64% compared to the WIGs 34% retreat.
There was a bubble created in 1999, said Dorota Ubysz, an IT analyst with SG Securities. The prices were too high but obviously this fall does not reflect the fundamental value of the companies.
Polish companies are not alone. Around the world, some firms have watched millions of dollars on paper disappear since the tech-heavy Nasdaq Composite Index peaked on March 10, 2000. The U.S.-based index, a bellwether for the WSE in general and tech stocks in particular, has shed roughly 70% since its record high.
Analysts said the ongoing shakeout will leave some strong companies that are here to stay, contribute to economic growth and eventually offer some nice stock returns. When the slide ends and the turnaround begins is, however, unclear. Investor perception and underlying economic fundamentals are both important.
Internationally and domestically, an economic slowdown has been pinching IT investments.
Andrzej Jarosz, managing director for technology research group IDC Poland, said that so far this year the IT market here may have slower-than-normal growth but it is still growing. And because of low IT saturation throughout the country, there is still significant potential for growth even with the winded economy.
Even in this situation when you have to decide about cost-cutting youd rather fire people than reduce IT investment, he said, adding that the payoff is increased productivity. We observe this quite frequently with small and medium businesses.
But the third-quarter figures are still unknown and, crucially, the government budget collapse could undermine demand. Central and municipal governments account for 10-20% of purchases in some Polish IT sectors and, by the fourth quarter, constricted budget priorities could show up on the IT market, he said.
Meanwhile, share prices could continue to suffer.
The investors trust was weakened when it appeared that its hard to make any profit, said STGroups Kanicki. The recovery of invested money is now doubtful. Generally, the state of the economy is getting worse, its a kind of self-winding spiral.
IT firms tend to lead the market, however, and signs of a turnaround might start to surface in about six months, he estimated. Weve been expecting a sign of that it would be a stock price rise and then a general improvement, he said. But its still too soon for that.
