Analysis of the Software Sector

As I posted a couple of days ago, I've now got details of the companies that comprise the Software Sector (as per IG Index). These companies are;

• Autonomy Corp
  
• Aveva Group
  
• Dimension Data
  
• Fidessa Group
  
• Invensys
  
• Logica
  
• Micro Focus Inte
  
• Misys
  
• Sage Group
  
• TeleCity
  

I was pleasantly surprised that there are that many to deal with. It'll make the analysis a lot easier!

I'm going to start the analysis by simply looking at the technicals of each of the companies. A small scan will reveal whether the company is a leader or a laggard - by that I mean is the companies performance in line with the index or is the company performing badly compared to the index. I'm only interested in leaders

Autonomy Corp - LEADER
Aveva Group - LAGGARD
Dimension Data - LAGGARD
Fidessa Group - LAGGARD
Invensys - LAGGARD
Logica - LAGGARD
Micro Focus Int - LEADER
Misys - LAGGARD
Sage Group - LAGGARD
TeleCity - LEADER

Now, lets delve a little deeper into these companies.

Autonomy Software - Key points

• "A leader in intelligent search" (sounds interesting, this is a company that are working in just the right sort of area to benefit from Web 2.0)
  
• They are trading at or near 2 year highs. (Perfect, although there may be resistance as they try to break through these highs)
  
• Grown from T/O of $65m in 2004 to $503m in 2008. (Very impressive growth)
• Recently introduced a new search product (innovation and R&D spend is the sign of a good company)
• They have cash on the Balance Sheet (can finance 'stuff' without need to borrow)
• Debt/Equity Ratio is comparatively low at 2.37 (less exposure to credit crunch)

I like what I read about Autonomy. Definitely on the watch list.

Micro Focus Int - Key points

• "Provider of enterprise application management solutions" (mmm, not actually sure I know what that means!)
• Look to have expanded through acquisition (can be a risky strategy due to integration challenges)
• Purchased a company on 4th Jan 2009. (In the current market condition, this is an impressive bit of business - I wonder how they funded it?)
• They are trading at or near 2 year highs (Shows they are performing irrespective of the current crisis.
• They have grown steadily since 2004 (Solid growth as opposed to explosive)
• NO DEBT! (this makes them bloody attractive!)

I also like this company. It's on the watch list

TeleCity - Key points

• Pan European provider of independent data centers (yawn - this is not exciting!!)
• Recently announced an Amsterdam data centre (oookay, my tits are now really sagging. Not an interesting business, but, yawn, I'll keep looking)
• Doubled in size since 2006 (ok, thats quite cool)
• They are recovering from hitting a low in Nov 2008.
• Debt/Equity a massive 47.88 (This is a worry)

Telecity have been relegated to TheAtticMans sub bench. I'll keep an eye out, but they are certainly less investable than Autonomy and Micro Focus

I'll take a real quick look at the LAGGARDS to make sure I've not missed anything.....I've had a look and nothing jumps out as exciting.

Next steps. Some more detailed research into the companies and some consideration on logical entry points.

Autonomy - daily chart

Micro Focus - daily chart