What’s wrong with this picture?

(By Anthony Miller – Thursday 15th October 2009 9:30am). As the media cheers the Dow breaking through the 10,000 barrier for the first time in over a year, we need to bring to your attention yet again how dangerously out of line UK software and IT services stocks have become compared with the rest of the market.

Even the Dow’s heady performance (blue) has ‘only’ brought the index up 15% since the beginning of the year, just trailing the UK FTSE100 (green - a little under 20%). In comparison, Nasdaq (red) is up just under 40% ytd and the UK SCS (software and computer services) index (yellow) is, wait for it, up 70% ytd.

This just cannot be based on fundamentals. I’m well out of ‘financial modelling’ now, but I can’t see how equity analyst models can justify these valuations based on recent results and outlook statements, and any reasonable assessment (i.e. ours!) of how slowly and erratically IT spending is likely to recover. I fear investors’ love affair with UK SITS stocks will only lead to a broken heart.

More to come in the next issue of IndustryViews Quoted Sector - for subscription service clients only, of couse!