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Shares in Misys fell more than16 per cent on Tuesday after the banking and healthcare software group warned that first-half profit would be “significantly” below last year.

It said it was not sure if the shortfall could be recovered in the second half.

The warning shocked investors. The company had previously spoken of a modest recovery in the banking sector after three years of declining information technology budgets.

Shares in Misys fell 38¾p to 200p, their lowest level for a year.

Misys said that, while it had received a number of large orders such as a multi-million euro deal from Fortis, the financial services group these were taking longer to implement than expected.

The company is also being hit by increased research and development costs as it rushes to update its software to keep up with competitors. The warning caused analysts to cut earnings per share forecasts for the year to the end of May 2006 by about 15 per cent to about 13.5p.

Analysts said Misys's problems did not signal any widespread slowdown in the banking sector as smaller competitors such as Temenos and i-Flex Solutions were still seeing strong growth.

The problem is that Misys is less exposed to retail banking, the fastest growing part of the sector, than many of its rivals. It is stronger in wholesale banking and treasury, where growth has been more static.

Misys has also been slower to update its technology than many rivals, which are already offering systems designed for the internet-based technology that many banks are moving to.

Misys began a programme to update its software 15 months ago but has yet to release the new technology onto the market.

The increased investment Misys is making in research and development in order to catch up will hit profits in the first half, as will increased investment in its professional services operations.

Kevin Lomax, chairman and chief executive, said the shortfall was simply a “timing issue”. He said the company's order book was strong and that he remained confident about the underlying prospects business.

The profits warning came on the day of Misys's annual meeting and days after the company withdrew a controversial proposal to offer “retention” bonuses worth £2.4m to two executives.

The bonus scheme had been designed to ensure that the executives did not leave the company if they were passed over for the role of chief executive when Mr Lomax relinquishes the role in two or three years time.

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