Smaller companies: On Demand is in demand on-line

THE SCORCHING progress of shares which have anything to do with the Internet or on-line services generally shows the high level of investor excitement in this area. Shares in the UK on-line service provider Maid, for example, trebled in a matter of days when it announced that Microsoft was taking a stake.

One potentially exciting UK provider of on-line services, which has not yet received the investor recognition it deserves, is On Demand Information (ODI) at 126p.

ODI develops on-line directories and brochures for the "paperless office". Internet pages and CD-Rom products also form part of the stable.

The shares have picked up recently on news of a distribution tie-up with British Telecommunications. That looks highly promising in itself, but is even more significant in giving the thumbs up to what the company has been doing over the past couple of years. The deal with BT involves two products relating to construction and personnel. But ODI's founder and chairman, Graham Poulter, says the group has identified more than 80 markets where it could provide a service.

When the group was floated in December 1993, the emphasis was on providing what were effectively electronic magazines. But the thinking has moved on to what it calls a full-scale on-line service. Mr Poulter describes what he is doing as "net- work multimedia": provision of text, voice and video images as part of a complete information service. Management consultants PA recently prepared an evaluation of the essential operating elements needed to enter this market (in terms of content, software, hardware, service provision and the like). Poulter claims that ODI is the only organisation in Europe and possibly anywhere else which currently fits the bill. A recent stockbroker's note from Albert E Sharp said that the company's offering was ahead of others in its markets.

The advantages of on-line information services to the business community are enormous. All they need is a computer and a modem to receive information which ODI makes sure is kept up to date with the latest details entered several times a day if necessary. Typically, in a paper-based environment, brochures become outdated, take up valuable storage space and require additional employees for filing. ODI's service can quickly pay for itself. For example, one of the two modules on the personnel and training service (aimed at the 13,000-plus UK companies with more than 200 employees) gives detailed information on all the EU grants available for training. Gaining one or two grants would quickly offset the cost of the service.

ODI generates revenue from annual charges and from manufacturers paying to have their literature included in the service - in effect, subscription and advertising revenue. There are around 1,000 subscribers to the construction service taking on average two information modules each and paying around pounds 1,500 per module. The more recently launched personnel service has around 100 subscribers, including such well-known names as the Bank of England, the Inland Revenue and Eastern Group.

Part of the significance of the deal with BT is that instead of building business via a team of 10 dedicated salesmen, in a total labour force of 227, ODI will have the benefit of 4,000 BT salesmen licensed to sell both the construction and personnel services. Training is taking place, with sales to begin early next year. Subscription revenue will be split between ODI and BT, but Mr Poulter expects ODI's share to be at least pounds 20m over the four-year agreement. There are few offsetting costs, so this revenue stream should have a striking impact on profits. It also assumes comparatively modest penetration of the market.

Inevitably, in building itself up, ODI has made losses, which reached pounds 3.6m in the year ended this July. Mr Poulter says he expects the group to be profitable next year, which would be a bigr step forward and position the business,capitalised at pounds 64m, for an exciting 1997 and beyond. Albert E Sharp suggests 1996-97 profits could be in a range from pounds 3m to pounds 6m, with pounds 4.7m the best guess, giving a prospective price-earnings ratio under 14.

But the excitement for investors is that if the company can turn its relationship with BT into significant profits over the next 18 months, there is potential to bring new services on stream. Like all start-ups in a new field, ODI is high-risk, but Mr Poulter sounds confident, and the rewards could be substantial.