Derek Pain: There's life left in the hi-techs

With the techMark share index bumping along around its all-time low, it may seem an odd time to descend on the bombed-out hi-tech sector. But betting against the herd - as the Rothschild family so famously proved - can be a rewarding exercise.

With the techMark share index bumping along around its all-time low, it may seem an odd time to descend on the bombed-out hi-tech sector. But betting against the herd - as the Rothschild family so famously proved - can be a rewarding exercise.

I am not suggesting investors should pile into burnt-out internet stocks. The future of many is clearly in the past as the stock market's growing 90 per cent club (shares which have lost more than 90 per cent of their value) adequately demonstrates.

I have always been something of a Luddite. Hence the no pain, no gain portfolio confined its hi-tech involvement to two companies making profits and paying dividends. Even such a cautious policy has not been without problems. After all, one of my hi-tech stocks, Lynx, is by far the worst portfolio performer and the other, City of London, has suffered a savage decline from its peak, although the portfolio is still making a profit, albeit a modest one, on its investment.

Still, I should have suggested some profits be taken when City of London shares were enjoying the stratosphere last year. Selling half, when the price was above 900p against the present 135p, would have been a splendid coup.

Nowadays it is difficult, among the hi-tech carnage, to discover a really promising share, particularly among the small fry. Many are now little more than walking wounded, offering only faint recovery possibilities and probably destined to join the growing army of quoted shells.

But one or two gems lurk. And one such share could, I believe, be Epic, an e-learning group.

Unlike so many, it has not suffered a share mauling. The price is now around 358p; not all that far away from the 415p peak hit in the internet craze last year. It was in earlier years often around the10p mark.

The group meets one of my two essential requirements. It actually makes profits, but I get the impression any intention of accommodating my other condition and paying a dividend is a long way away.

Not surprisingly, the stock market is fully aware of Epic's promise; the shares are highly rated. Assuming the group produces the forecast year's profits of £1.5m (against £770,000), the shares are selling on about 60 times forecast earnings. Still, at least there are profits, allowing such an important calculation to be made. Frequently sales, often at a pitiful level, provide the only indicative investment measurement for many atech share.

Epic, capitalised at £88m, produced half-year profits of £567,000, up 163 per cent, last month. Such a performance had been expected.

The group, run by chief executive Donald Clark, is Britain's largest producer of bespoke online learning programmes. The so-called e-learning market is growing by leaps and bounds.

In the US, the corporate side of the market is expected to grow from the present $2bn a year to $14bn (£9.5bn) by 2004; the overall European market (corporate and education), worth $80m (£50m) last year, could command $4.4bn (£2.8bn) by 2004.

Geoff Douglas, an analyst at stockbroker Altium, points out the sheer vulnerability of traditional classroom, eyeball-to-eyeball training in this online age.

In the US, he says, nearly two-thirds of the cost of company training sessions are represented by overnight accommodation and travelling to where the class is being held. Such expenses are removed by online learning, which can be much quicker and also eliminates "dead" travelling time.

Epic specialises in e-learning for companies and governments. Its spread of clients include Lloyds TSB, Barclays, the Inland Revenue and Customs & Excise.

The company also has an incubator side. Its three investments in fledgling hi-tech companies are in the books at £260,000; they are thought to be worth about £2m.

As well as the understated incubator investments, the group's position is further strengthened by £4.6m cash tucked away in the bank.

With giddy e-learning growth forecasts floating around, competition is bound to increase. But Epic would seem to be in a splendid position to not only hold its own but achieve further, exciting growth.

Indeed, Mr Douglas believes that next year profits should come out at around £2.35m; he has pencilled in £3.4m for the following year.