Demand for telecom shares in recent weeks has been almost as frenzied as the mad scramble for tickets to the England against Scotland Euro 2000 qualifying match at Wembley next Wednesday. The latest telecom take-off was inspired by German media group Mannesmann's £20bn bid for mobile phone operator Orange (LSE: ORA).
This sparked a whole wave of rumour about the future nature of telephony in Europe. Who would be buying whom? Which companies would link up to provide the market beating services to steer the continent into the next millennium, dominated as it looks likely to be by bright and buzzing communication. Investors have piled into anything, which vaguely looks to have potential in this glamorous area.
But remember Fools don't rush in. They carry out long and detailed research into a company's business. And then calmly decide, on the back of their own valuation of the business, whether to jump into the muddy market pools and swim a straight course through the swirling eddies of conflicting opinion, safe in the knowledge that their original decision was justified.
At the end of the day it's hard to beat favourite established fixtures though. The most eagerly anticipated sporting fixture this year has not turned out to be the upstart Rugby World Cup, nor the one day Cricket World Cup, despite the hype. The European Champions Football League is beginning to look a bit jaded as well, as viewers tire of Manchester United(LSE: MNU) against Transylvannia Athletico. No, instead the perennial favourites, such as the clash of the Auld Enemies at Wembley, retain a special place in fans' hearts.
In the same way private investors must still have a fair amount of affection for British Telecommunications (LSE: BT.A). This was probably the share, which kick-started many individuals' interest in the stock market, when it was privatised back in December 1984. At that time there were no real competitors in the telecom industry listed on the London Stock Exchange. It was a screaming must-have in anyone's portfolio. If you had bought the shares at their flotation price of 130p and hung onto them Foolishly, you would have seen the shares shoot up over 800%. Not bad for what many perceived as a lumbering dinosaur, threatened with extinction by upstarts.
But Fools look at the future earnings potential of a company. TMF Alan looked at the modern BT in detail during a succession of Ruleshaker pieces this September. Today BT is operating in a much more competitive environment. When it floated the company could survey the sector, from its lofty perch, unchallenged. Like the England football team back in the sixties, it still regarded itself as a world power. But the company seems to have done better at maintaining its competitive advantage than the downtrodden England team, which is, after all, forced to enter a play-off, rather like a last chance saloon, for the right to compete in the European Cup finals.
BT on the other hand is maintaining its advantage and seems to be keeping up with its rivals. All the leaps forward, such as fast-speed internet data traffic, mobile telephone provision via Cellnet, European coverage via links with Viag amongst others and cheaper long-distance calls using the AT&T alliance, are being offered by BT. It seems though, until today that the company has been rather left out of the telecom picture, with many investors focusing on tie-ups rather than organic growth. Certainly the BT message board looks quite quiet compared to the rest of its peers.
This morning BT released relatively impressive interim results. Earnings before interest, tax, depreciation and amortisation, or EBITDA as it is known in the Wise trade, rose 8.6% to 17.9p. This was despite the £3.15b cost of buying in more mobile customers, through the acquisition of the outstanding minority shareholders in Cellnet. A further £3bn has been spent on the AT&T global alliance.
The raw numbers show pre-tax profit up £529m, or 46.7%, to £1.66b on sales up 19.4% to £10.32b. However, the business is changing so rapidly, as TMF Alan acknowledges, that it is hard to give any true year-on-year comparisons. The biggest growth is coming form mobile phone and data traffic. For instance in the first half BT Cellnet, the mobile arm, attracted a further 1.43m customers, representing a 31% leap to 5.95m in all.
This good news sent the shares up 76p, or 6.6%, to 1223p, a new record high. Perhaps then there are Foolish virtues in being boring. The Australian rugby team certainly showed this to be the case in the World Cup. Who would bet on BT being extinct in ten years? I wouldn't. But will their shares show another 800% leap? It will be interesting to see.
There were many strong performers in the market this morning although once again telecoms were the focus of attention. Cable & Wireless(LSE: CW.) was the best performer amongst the blue chips with a rise of 62.5p or 9.4% to 728p.
365 Corporation is the latest internet flotation to hit the UK. This morning they announced more details regarding the offer. The price range will be 135p to 150p with the mid-point valuing the company at £260m. The group will raise £50m after expenses. The final offer price and allocation will be announced on November 29 with first dealings on December 1. Watch out for an upcoming Stock Ideas Special.
This news seemed to spur other internet stocks into action. QXL(LSE: QXL) surged 97p or 26.4% to 464.5p whilst Gameplay.com(LSE: GAM) added 20p or 9.7% to 226p.
Another recent listing, Terence Chapman Group(LSE: TCG), also made punters look up and take notice with a rise of 34.5p or 19.8% to 209p. This morning the group announced the launch of TAROT2000 which is described as "a major extension of its well-proven TAROT system". TAROT is used by four of the largest eight brokers in the UK, including Barclays(LSE: BARC), Charles Schwab Europe and the Halifax(LSE: HFX).
Wardle Storeys(LSE: WDL), a manufacturer of plastic sheets and parachutes, announced that they had received an offer for the group at 441p per share. The shares rose 90.5p or 28.3% to 410p.
Somerfield(LSE: SOF) revealed more details regarding their restructuring this morning as outlined in the Breakfast Fool. The merger with Kwik Save appears to have been short lived with a large number of its stores being sold. The market's reaction was tepid with the shares falling 8p or 8.5% to 86p.
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