OPINION: Spectel expects the offer price to range between €3.05 to €3.65 a share, valuing it at around €222 million. As usual for a new issue, the price is not an exact multiple of anything but has been struck by sounding out interested parties.

Dublin, London, Edinburgh, Frankfurt, Copenhagen, Boston. Then to New York today.

Sounds like a sight-seeing trip, but to Gerard Moore, chief executive of conference equipment firm Spectel, it has been an intense week of roadshows, prior to the introduction of the company's shares on the "grey market", in Dublin and London, next Wednesday. Considering that this could be the only IPO in the information technology sector this year (C&C is also planning an IPO) the event should be memorable.

However, next week's reaction is unlikely to be a reliable guide to the real mood of the market. First, the issue is only directed at the institutional market (private investors are not targeted). And second, Schroder Salomon Smith Barney, or parties acting for it, have the option of supporting the market price of the shares at a higher level than what might otherwise prevail, for a limited time.

This form of stabilisation has been used by other new entrants to the markets but it can distort the underlying trend of the share price. Investors will remember the initial distortions in iTouch's share price.

Spectel expects the offer price of the placing to range between €3.05 to €3.65 a share, which will value the company at around €222 million. As usual for a new issue, the price is not an exact multiple of anything. Instead, it has been struck by sounding out interested parties. So how does this stack out?

Unlike other IT newcomers, Spectel is profitable; last year pre-tax profits rose from €0.5 million to €5 million, mainly due to a contribution from MultiLink, which it acquired in November 2000. Based on these earnings the mid-share price is on a very high historic p/e of 49. So the proposed placing price hinges very much on the company's prospects.

Spectel is not making any forecasts but brokers close to the company are wildly optimistic. The three research papers circulated to potential investors see very substantial growth in the years ahead. Although close to the company, the researchers make it clear that the views expressed are independent and, as NCB says, "any opinions and projections. . . [in the review\] are entirely those of the authors".

These projections put the mid-price on a p/e range of 18 to 22 for 2002, a range of 12 to 15 for 2003, and around 8 for 2004, and these are before the cash injection of some €46.2 million from the placing.

Gerard Moore is selling a block of his shares, bringing his stake down from 51 per cent to 29 per cent and netting some €20 million. He also raised funds in the three previous placings; €1.9 million in December 2000, €2.5 million in November 2001 and €1 million in December 2001.

But are the analysts' projections overly optimistic? Wainhouse Research (2001) has forecast that the conferencing-infrastructure market, which includes voice and data infrastructure and video servers, will grow from $375 million (€417 million) in 2000 to $1.25 billion by 2005, representing a compound annual growth rate of more than 27 per cent. If these forecasts are borne out, and if Spectel continues to grow its share of the US market, then the projections are attainable.

But with such a high-margin business - Spectel's gross margin was 70 per cent last year - new competition is likely to emerge, and that could put pressure on margins.

However, the company has been pro-active. Also, according to industry sources, it has won business from Latitude Communications, a Nasdaq-quoted company, which lost $1.5 million in the last quarter of 2001. Its market capitalisation is now just $45.6 million and could be easily taken over by Spectel if it wanted to.

Competition could emerge from the manufacturers of the equipment. Polycom, a manufacturer of voice and video communication products, for example, generated revenue of $120 million and a gross profit of $65.9 million in the last quarter of 2001. It had the resources to spend $68 million on research and development in that period.

R&D is also very important to Spectel. Of its 239 employees, 92 are in R&D, while R&D expenditure accounted for 18 per cent of revenue in 2001. Recognising this, the company has set up a special royalty company so that certain employees can get tax-free payments. Patent royalties, for example, rose from €50,000 in 1999 to €180,000 in 2001.

Spectel has a degree of safety; 80 per cent of the sales to service providers (these account for 58 per cent of group sales) are repeat, while 20 per cent of sales to enterprises groups (42 per cent of group sales) are repeat.

Spectel is in a strong financial position. It had cash of €14.4 million at the end of 2001, which represented a large slice of the €42.2 million shareholders' funds and that will be boosted considerably by the proceeds from the placing. However, the group has intangible assets of €20.8 million, representing the goodwill on the MultiLink purchase, which would represent a bit of a noose if the group's market turned sour.

Spectel has had a comparatively short life - Gerard Moore took control in a management buyout in 1996 - but if it can achieve the brokers' projections for 2003, then it will join the small rank of reliable IT companies.