Technology stocks bonanza unlikely
Internet, television and mobile phones will be playing a major role in e-commerce in the next few years, , says Perennial Partners managing director Ian Macoun.
Internet, television and mobile phones will be playing a major role in e-commerce in the next few years, , says Perennial Partners managing director Ian Macoun.
Macoun says the e-commerce market will reach $US1.3 billion by 2003.
“There are radical changes underway in the way we do business that will increase productivity and create economic growth without inflation,” he says.
Macoun was speaking at the launch of both IOOF’s new Adviser Desk Top on-line service for advisers and the new wrap services called Max.
He says while the technology revolution is only just beginning, it will not turn into an investor bonanza as the risk and returns are both high.
However, the growth potential of e-commerce is strong in Australia. Only 25 per cent of households are on-line compared to 1 per cent in Asia. The US has 50 per cent of households on-line.
Only 2 per cent of the 800,000 small to medium-sized enterprises in Australia are on-line.
Macoun says the growth potential of technology is allowing the Australian economy to grow for longer period without the Reserve Bank applying the brakes.
But he warns many of the companies that have the ideas to capitalise on the technology growth will not make money. “Most companies that have technology advantages lose them because the pace of innovation is faster now.
“Competitors will take away the profits from these companies and deliver them to the consumers.”
The average life of a technology company is five years as it becomes more difficult for them to sustain market power, Macoun says.
“Sustaining competitive advantage is the exception rather than the rule.”
For investors, the lack of discipline in pricing these technology stocks is going to cause problems down the track, says Macoun.
“Every (technology) company is being rated on how it achieves its goals which is wrong,” he says.
Perennial’s investment style is to look for those technology stocks with good growth prospects, which Macoun says it is “willing to pay more for”.
He finds it hard to see the value in companies like E-corp which has a market price of about $7, and which Perennial believes is only worth between $4-5. “What price do you put on blue sky? It is a speculative punt,” says Macoun.
“You must put technology stocks into context. Look at the actual business and decide on a sensible price to pay for the stock.”
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