Investment: Dialog plunges over on-line difficulties

THE CITY has always been faintly suspicious of Dan Wagner. Yesterday, the smooth-talking chief executive of Dialog confirmed investors' worst fears. Third-quarter figures from the on-line information firm came in well below expectations. The punishment was severe: Dialog's shares dropped 58 per cent.

Shareholders are worried that Knight Ridder International, the huge on- line library business which Dialog bought last year, was falling apart. At the time of the deal, Mr Wagner promised to cut the cost base by $35m and reverse KRI's drooping revenues. Although he has more than kept his word on the cost front, revenue growth has proved elusive. A poorly handled change in pricing policy earlier this year, which prompted a boycott from some customers, meant sales were flat.

According to Mr Wagner, this is a short-term blip and sales growth has returned, albeit only in single digits. But shell-shocked analysts are now completely rethinking their assessment of Dialog's prospects. The company's comment that the fourth quarter will be no better has not helped sentiment. Dialog's huge debt load does not help matters, even though the group is in no immediate danger of breaching its banking covenants.

That said, investors should not be panicked into selling. Dialog's library is still a tremendous asset and, with the rise of the Internet, should continue to reach an increasing number of users.

Dialog's enlarged management team - it has just appointed a chief operating officer - cannot afford any more banana skins. But at a share price of 96p the company is valued at less than its expected 1998 revenues - a far cry from the highly valued Internet stocks on Wall Street.

If Mr Wagner cannot generate the growth the chances are someone else will do it for him. For the adventurous, yesterday's plunge is a great buying opportunity.