MARKET COMMENT
Marconi Is A Mess

By Maynard Paton (TMFMayn)
November 13, 2001

Carburton Street, London -- Today's interim results from Marconi (LSE: MONI) show no recovery for the telecom equipment manufacturer. Indeed, the company remains in a financial mess.  Tot up all the write-offs, impairment charges and provisions, and Marconi registered a staggering £5.1b half-year loss. The shares are best left for those who prefer hope over reality with their investments.

Excluding discontinued activities, Marconi's six-month story encompassed sales of £1.6b and an operating loss of £222m. However, there was a vast improvement during the period, with Marconi's core business reporting a second quarter operating loss of just £31m. But while the company's restructuring has made headway, there's no sign of near-term improvements in the top line. Market conditions continue to remain difficult, with the company unable to even give revenue guidance for the remainder of the year.

At 29.5p per share, Marconi is valued at £820m. Fair value? Here's the truth: nobody knows. The firm has just reported turnover at its core business falling 26%, continues to register an operating loss, while its management don't have a clue about their near-term performance. Meanwhile, following recent disposals, Marconi's net debt stands around the £3.4b mark. Understandably, the company is exploring re-financing options. With all that in mind, how do you value Marconi? You can't.

So why take the chance of a Marconi punt? Sure, there's the possibility of owning a ten-bagger if Marconi promptly turns around. But more likely, the shares will still be hovering around the 30p level in years to come as Marconi remains at the mercy of its lenders. Foolish investors should and concentrate their efforts on businesses that are proven, successful operators in their respective fields that don't have the burden of anxious bondholders. Leave Marconi shares for the gamblers.

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