Fool's Eye View

[ October 6, 2000 ]

Marconi Goes To The Nasdaq

By Rob Davies (TMFEssex)

Colchester, Essex. In a perfect world it shouldn't matter where a company's shares are listed. Modern communications, you know this Internet thingy, should mean that effectively every savvy investor should know all that he or she needs to make informed investment decisions. The company is the same even if it is listed in several different markets. Just as on any street market the price of a pound of apples should be the same on all stalls.

Fortunately for investors the market is not efficient. Some are simply not aware of what is for sale elsewhere and miss fantastic bargains, while others may get far too enthusiastic and push some equities up to daft levels. So, despite the Internet, Marconi (LSE: MNI) has decided that the best way to tell the biggest investing market in the world of its prospects is to list its shares on the Nasdaq. This is the more lightly regulated, but preferred, home for technology stocks in the US.

The actual listing will take place in the week of October 16th, but before that the company will undertake a road show starting next week to tell US investors all about this British company. Except of course it isn't that British. It has as many employees in the US as the UK and £2.5b of it's total sales of £5.7b come from the US. It is always hard to know how the Americans will react to this sort of sales pitch. On the one hand Marconi's price to sales ratio of under 6 looks pretty competitive compared to some of its US peers. Nortel is on 7.5 for example but Lucent has fallen to only 2.5. However, the spate of profit's warning from a swathe of US technology companies is not a good environment to be pitching too.

Despite those caveats the Marconi story does seem to be good, and the press release today contained some of what will be in the road show. It says trading in the first half is going as planned, but the results won't be out until 29th November. It says market expectations are reasonable. Orders have risen to £3.3b against £2.7b last year and more are in the pipeline. What is encouraging is that sales in the key growth area of Optical Network are expanding at 50% and overall Communication sales are up 40%. Last year Communication Networks reported sales of £2.5b and an operating profit, before amortisation, of £416m.

This growth is being driven by the twin prong approach of increasing research and development spend and more marketing. R & D spend will rise by £40m, and marketing will be £20m more. At £417m last year's R& D budget was considerable and the emphasis now is on Voice over IP, broadband switching and ring based DWDM (dense wave division multiplexing) solutions. Encouragingly, Marconi is also expanding production of its optical components business at a cost of £20m, so the marketing spend seems to be justified.

In a delightful fusion of old and new communication systems Marconi is working with British Waterways to install a fibre optic network, called Fibreway, alongside the canal system. This business will be separated in early 2001 and good progress is being made towards lighting it.

The Americans like growth stories and the tiny amount of broadband communications world-wide means that Marconi still has plenty of opportunity ahead of it. Bulls of the stock will be hoping the stock market is not yet efficient, and that the Americans will respond warmly to that old-fashioned way of communicating, a presentation followed by a rubber chicken lunch.

The Marconi discussion board is sure to be humming on this news today. It will be worth reading to hear what they have to say.