The Investment Column : No fireworks from Firecrest

Shares in Internet-related companies are not for the faint-hearted, to judge by the roller-coaster ride of Firecrest, one of the most heavily hyped of recent issues on AIM. Launched at 38p last summer, the shares soared to as high as 203p in November, on news of the company's exclusive deal with a US company to provide cheap telephone calls over the Internet.

Firecrest took advantage of the huge demand to place additional stock at 120p. By Christmas, the price had drifted down to about that level, where it stood until the next press release, this time trumpeting the launch of an online "search engine" that allows users to cruise the world- wide web on the Internet. Up went the shares yet again, this time to 180p, from where it has been downhill all the way.

It is against this background that one must judge the company's decision, announced yesterday, to issue new shares at just 50p, to raise up to pounds 1.5m. Existing shareholders will get first call on the new stock, which might please some who bought in at 120p last October and want to average down.

But those who haven't already waded in might be wise to reflect on the company's underlying businesses, which are far from being the Internet success story some brokers claim. Indeed, 90 per cent of the company's sales (and all of its profits) come from the rather more pedestrian business of advertising and sales promotion. It is market leader, for example, in the management of sales promotions for national newspapers, including the giveway of CD music titles and the like. This business is likely to have provided nearly all of the anticipated profits of pounds 600,000 in 1995.

The Internet businesses are either embryonic or in highly competitive niches, such as Internet phone networks or the "search engine" end of the market where Yahoo already dominates. They may come good, but are unlikely to give much of a revenue stream any time soon.

With pre-tax profits this year estimated at anything between pounds 1m and pounds 2m, the shares are trading, after yesterday's drop of 32p to 90p, on a multiple of at least 13 times, ranging up to 25 times if the lower profit figure turns out to be right. Highly speculative.