"Shed that stock" recommendations are rare. But that's what Oscar Gruss advises investors to do in its update on Fundtech (Nasdaq:FNDT).

Based on the company's quarterly results, Oscar Gruss cut it from Hold to Reduce. It set a price target of $3.5, 16.6% below its current price.

The downgrade is due to the U.S. economic decline, mainly in finances, which the bank sees leading to cuts in IT spending by potential Fundtech clients.

Fundtech develops and markets automatic payment and online banking software for banks. But these institutions are unlikely to invest in expensive advanced technologies until the times get better.

"We are well aware of Fundtech¿s technological edge, but we are also alert to the potential slump in the company¿s business in the short term," says Oscar Gruss analyst Rami Rosen. His estimate follows the management's failure yesterday to provide a forecast for 2002, a result of the poor visibility of the next few months.

Delays in major contracts slash revenue from service
Fundtech ended Q3 with $10.6 million in revenues, around the bottom end of the $10.5 million to $11.2 million range it had pre-announced.

Yet the company expects even worse Q4 results with revenues at $9 million to $10 million.

Oscar Gruss gives a slightly more optimistic forecast of $10.2 million. Even then, its annual revenues would be only $45 million, down 4.9% from 2000.

During the quarter Fundtech announced that three more banks joined its CLS project, bringing the number of member banks to 15.

CLS is a 65-bank foreign currency real time automatic pay-off project. IBM Corporation (NYSE:IBM) is expected to provide the computer systems, incorporating the Fundtech collection systems, to the banks in the project.

The attacks of September 11 led IBM to announce the delay of the contract to Q2 2002.

The investment bank believes the repeat postponement of the project, which left the deadline for its launch up in the air, stopped the participating banks from making any acquisitions at this point. ¿In the long run CLS may very well act as a growth engine for the company, but for the time being it remains unclear when, if ever, that will happen,¿ says the bank.

Oscar Gruss finds the reduced sales of software licensing at Fundtech, down to $3.9 million from $8.9 million in the comparable quarter, discouraging. It sees it as proof of the difficulties the company is experiencing in getting new contracts.

The bank attributes the reduced revenues from maintenance and services, which totaled $6.6 million, to the fact the two major contracts - with Citibank and First Union (NYSE:FTU) -were also delayed.