The Investment Column: FI paints bullish growth picture

Everyone knows the information technology (IT) industry is booming. The reasons are familiar: pressure on companies to improve their efficiency by automating, the need to prepare IT systems for monetary union, not to mention the dreaded Millennium bug. But any boom brings the risk of a bust. The first worry is of staff shortages, which could force IT groups to postpone contracts, thereby hampering their rate of growth. The second is that, having successfully squashed the ``millennium bug'', the rush of work will dry up and the IT industry will go into a slump.

When a company has just reported a 54 per cent increase in first-half profits to pounds 4.31m, as FI Group just has, raising these fears may seem overly gloomy. But Hilary Cropper, chief executive of the applications management specialist, has a convincing response to both. She points out that fixing computers' inability to recognise the year 2000 as a valid date currently accounts for just 12 per cent of the group's sales. What's more, the rush to fix the problem has prompted firms to put other, less pressing, IT projects on hold until the next decade. By then, the UK's likely entry into monetary union will have thrown up a whole load of new gremlins for FI to tackle.

FI's real secret weapon, however, is IIS Infotech, the Indian computer services company it bought for pounds 25m last month. By farming out work to India, the group will be able to tap into a labour market which produces more software graduates than the US each year, all willing to be employed at a fraction of the cost of a British programmer. That allows FI to move beyond serving its traditional areas of finance, retailing and the service sector. The group thinks it can start undercutting its competitors and pinch contracts in the manufacturing and consumer goods industries, as well as the City.

All this adds up to a very bullish growth picture. That said, the shares reflect this. Brokers reckon full-year profits will be pounds 9.5m, rising to about pounds 13m the following year. That prices the shares, which edged up 5p to 1002.5 yesterday, at a staggering 38 times April 1999 earnings. FI is an impressive business with better prospects than most of its peers. But for the time being it's hard to see the shares rising much further from these heady levels.