INVESTOR: While the technology sector continues to suffer from lack of visibility of earnings, it is likely that investors will seek out those companies offering clear growth prospects

The initial burst of optimism that marked the first few weeks of January's activity in global equity markets has quickly given way to a much more subdued tone of investor sentiment.

The majority of global markets have been in negative territory so far this year, including the ISEQ, which has lost about 3 per cent of its value since December 31st.

The main factor that generated the positive bias to share prices was a sharp rise in the belief that the US economy will indeed recover during the first half of this year.

The cause of the current reversal in sentiment is not associated with a sudden reconsideration of this economic viewpoint. In fact, if anything, more recent economic data releases are supportive of the early economic recovery viewpoint.

Rather, what has happened is that a slew of company financial reports and announcements has served to bring investors down to earth with a bump.

Several of the giants of the global technology industry, such as Intel, Microsoft and IBM have published their most recent quarterly results. The actual sales and profits reported were in line or marginally below investors' expectations. However, statements regarding current and prospective near-term performance were universally poor and led to a sharp sell-off in the share prices of all three companies.

What seems to be happening is that analysts and investors are taking a much more across-the-board, sceptical attitude to profit projections for this year, particularly in the technology and telecom sectors. Given that the recovery in markets in recent months was led by technology, this negative reassessment has, not surprisingly, led to a significant setback in most equity markets.

In this environment, it is likely that investors will continue to seek out those companies that offer clear growth prospects.

The catch-phrase gaining pre-eminence in recent investment jargon is "visibility of earnings".

The chief executives of many previously high-flying technology companies regularly talk of lack of visibility with regards to future sales and earnings prospects. Put more simply, the current and prospective business environment is such that future earnings cannot be estimated with any degree of confidence.

Whilst this is clearly true of the technology and telecoms sectors, it is patently not the case for all sectors.

Therefore, it would not be surprising to see the share prices of companies that do offer highly visible earnings progressively outperforming the market. An example of such a company is DCC, whose share price has risen by approximately 30 per cent over the past three months.

The company operates in a number of different business segments, ranging from energy distribution to the information technology distribution sector.

The company reported profit before tax of €82 million (£64.5 million) for the year ended March 31st, 2001, and brokers' forecasts for the current year see profit before tax growing to the €90 million to €95 million range. Further good progress is expected for 2003, with profit before tax growing by 14 per cent.

The company's shares are currently trading around €12.50, which puts it on a price-earnings ratio of 13.0 and a dividend yield of 1.9 per cent.

This represents good value compared with the overall Irish market, and compared with the average for the FTSE business services sector.

This sector, however, includes a wide range of companies, from John Menzies to De La Rue, among others. Sector comparisons are therefore difficult for DCC as there are few, if any, directly comparable companies.

Nevertheless, the bull case for DCC really rests with its impressive historical performance and the strong possibility that it can replicate that performance into the future.

Over the past five years, the company has grown turnover and earnings per share by an average of over 20 per cent per annum.

Even if such a performance is not repeated in the coming five years, the company seems well capable of delivering double-digit earnings growth on a sustained basis - making it an attractive investment proposition in an uncertain environment.