Despite increasing sales of its electronic funds transfer software, including two large contracts announced recently, Fundtech Ltd. is in the doghouse among investors.

The Jersey City company's initial public offering of three million shares was priced at $11 last March and the price quickly rose to $26. "It was a high-flier, a high-performing IPO," said Michael Nemeroff, analyst at Lehman Brothers of New York, which co-managed the offering.

Three months later Fundtech filed a registration statement for a secondary offering of 3.5 million shares, citing a need to expand and the possibility of acquisitions.

Shareholders, put off by the quick return to the market, forced the company to withdraw the offering four days after the filing. Investors have since been unenthusiastic about the stock. Presumably they do not like a company that would consider such dilution of earnings per share.

Now trading at 13.5 times estimated 1998 earnings, Fundtech shares are significantly underperforming the Russell 2000 index of small companies as well as the S&P 500. It closed Friday at $11.375, down 12.5 cents for the week.

Recently announced deals may raise the company's profile and help it to compete better against larger competitors Logica PLC and Intranet Inc., Mr. Nemeroff said.

Lehman expects the company to increase its revenues next year to $40.4 million, from an estimated $22 million this year. Fundtech is expected to earn 45 cents a share in 1998 and 83 cents next year.

Fundtech recently signed a contract with $35 billion-asset Southtrust Corp., Birmingham, Ala., which may increase its visibility among larger banking companies, Mr. Nemeroff said. Terms were not disclosed. Fundtech also divulged details of a four-year relationship with Merrill Lynch & Co. "We are in a partnership with Merrill Lynch to develop what we think is the first global payments and cash management platform for corporations," said Moti Porath, a Fundtech vice president.

The software would let corporations that have multiple accounts with numerous banks manage the information centrally, eliminating the need to maintain a separate relationship with each bank.

Merrill, for example, could use the software to manage cash positions in its 4,000 accounts, which are dispersed among 300 banks and handle $200 billion of daily cash flow. G.M. Stetter, a Merrill first vice president, said the software would let the firm "take more control of our bank accounts."

The software is expected to become operational in Merrill's 114 business lines and available to other corporations in January, Mr. Porath said. Merrill, which is estimated by Tower Group to have spent at least $20 million helping develop the software, would get royalties.

Fundtech would market the software to banks, which could resell value- added versions to their own corporate customers. One bank would likely act as leader within a larger bank network, Mr. Porath said.

Merrill would use the network of the Society for Worldwide Interbank Financial Telecommunication to send messages among banks. But most corporations would probably use standard browser-enabled software to communicate over the Internet or intranets, Mr. Porath said.

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