IF you have had occasion to embark on a train journey in recent months, you will be aware that more of your fellow passengers are on their mobiles than those who are not. And many of them are businessmen talking telephone numbers.
The inexorable rise in the popularity of mobiles has of course impacted on BT’s sales growth - as has competition from resellers, regulatory price cuts and the end of its directory enquiries monopoly - yet its half-year results to September 30 reveal
advances in profits as a result of the introduction of various cost-cutting measures.
BT announced an increase in its dividend payout ratio, from 50 per cent of earnings this year to 60 per cent in the year ending March 2006, and intends to start a share buy-back programme using whatever cash is available after dividends, debt repayments and acquisitions.
Revenues from newer sources, such as broadband internet services, rose 24 per cent to £1.47 billion, but 84 per cent of BT’s turnover is derived from traditional sources. Shares presently represent good value with brokers expecting adjusted earnings of 16.7p for the full year, with a dividend of 8.3p. Sometimes it’s good to talk numbers. Buy.
Despite impressive first-half results, mmO2 has declined to follow the sectoral trend by introducing a dividend payout.
The company’s management team has good reason to maintain a tight grip on the cash the company is generating. Capital spending on third-generation networks will double to £200 million in the second half, as a payment to T-Mobile in Germany falls due, but mmO2 may have to spend heavily once other operators launch their third-generation services.
Yet sales and margins are rising in the UK and Germany, and sector analysts were impressed with the performance in Ireland. In addition to cashflow rising from £24m to £63m, an alliance has been formed with other European operators which should generate product and procurement benefits. Shares look fairly priced at 73.75p.
Half-year results from Vodafone reveal that new chief executive Arun Sarin has hiked the dividend and promised a £2.5bn share buyback programme over the next year, though, as the company has not provided any detail of the rate of future dividend increases, Sarin’s long-term commitment to cash returns remains uncertain.
Free cashflow at the half year improved 61 per cent to £4.6bn as capital spending fell and dividends from associates in France and the United States increased. Pre-tax profits, before goodwill amortisation and exceptionals, rose 26 per cent to £5.4bn.
Given that cash returns should support the share price and the growth potential in voice and data services, Vodafone shares earn a buy recommendation.
Telecoms equipment company Marconi’s shares have risen steadily since rejoining the stock market after restructuring - and rose nearly ten per cent on the day its half-year results were issued. These results revealed that while year-on-year sales figures remain less than impressive - down 26 per cent from continuing operations - sales grew six per cent from the first quarter to the second.
Operating losses were £58m, before goodwill amortisation and restructuring charges, and £149m after.
Chief executive Mike Parton says Marconi will reduce its annual operating costs to below £425m by its year-end. Gross margins are picking up too, partly due to growing sales of high-margin products in the US.
Despite an expected £100m pre-tax loss this year, sales and cost trends have been encouraging with shares fairly priced at 591.75p.
It is only 18 months since telecoms operator Redstone was on the brink of folding, but following the sale of its entire network to BT in mid 2002, it has managed to reinvent itself as a more viable operation. The company has been aggressive in its commitment to driving up margins through a policy of casting adrift smaller and less profitable customers, while turning the focus of its attention to the sale of higher-value services, such as consultancy.
The impact of this volte face in strategy on turnover has been immediate - customers have fallen from 15,000 two years ago to 9000 today, but these larger customers have helped pull up gross margins from 25.5 per cent to 30.9 per cent.
Redstone’s house broker expects a full-year, pre-tax loss of £800,000, equating to a loss of 0.2p a share, though it predicts the firm will post a pre-tax profit of £300,000 the following year. While worth keeping an eye on, Redstone faces fierce competition from larger operators.
• Drew Johnston is a business writer and managing director of Blueprint Media
