No Pain No Gain: Blue Star may yet shine despite the market's cynics

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The Independent Online

Never bet against the market. It's an old City saying that has over the years acquired a substance it does not deserve. For the stock market is often wrong, and it is not at all unusual for a share to be hideously overbought - or oversold.

On many occasions a price has soared into the stratosphere only to tumble to earth when reality sets in. And it is not difficult to find shares that have slumped too far and too fast before staging a spectacular recovery.

Indeed it is not just individual shares that have exposed the nonsense of invincibility. The dot.com madness at the turn of the millennium and the current love affair with an array of doubtful resource shares are classic examples of collective irresponsibility.

Next week we should find out whether the stock market is right about a little company called Blue Star Mobile. For the shares have had an horrendous time since April's flotation on the Alternative Investment Market (AIM). Sold at 20.75p, they are now 10.25p and look so friendless they could slide even lower.

Blue Star, once the name of a leading garage chain, is involved in a branch of the new economy - and, of course, this old luddite is completely out of touch with almost everything it does. As far as I am concerned mobile phones are ideal for talking or, even, texting and maybe getting the occasional share price.

But not any more. As usual I am the dunce at the new technology prize-giving. Indeed to the men who run Blue Star, such routine activities as chatting on a mobile are mere sidelines. They see mobiles as vehicles for such pursuits as entertainment, games, information and marketing.

The company is only 18 months old. And most of its top men are in their thirties. It is, therefore, a young business, in a young industry and run by young men. And, in the main, it is aimed at people like my grandchildren. Perhaps its very youthfulness is why its shares have come such a cropper.

But there is no doubt that Blue Star holds out intriguing possibilities for all investors. Even I can see that.

The company, where 30-year-old Steven Clarke, a hi-tech entrepreneur is chief executive, is due to ring in with its maiden figures. It should do so on Monday. At one time it seemed destined to report next Friday - and Friday is a notorious day for bad tidings in the City.

My understanding is that Blue Star will manage to offer figures suggesting it traded not too far away from break even in the six months ended September. For the full year there is every chance a profit approaching £300,000 will be achieved. If I am correct the stock market may have been wrong footed again. Monday's trading statement should be a useful guide.

Since the flotation there has been a steady stream of contract wins. And a few more should materialise with the interim declaration. The main negative influence has been a share placing at 15.55p - well below the flotation price - to pay off debt. Other placings may be needed. It is significant that only a modest amount of cash was raised when the shares arrived via an introduction.

Even so the announced contract roll out is impressive. It involves, among others, The Sun newspaper, BlueBoy (a German on-line retailer), a football game on T-Mobile and, one for all ages, a deal with British Airways offering its customers' a guide to London. For good measure there is a sports division, embracing cycling and football.

The mobile phone market is huge. Witness the trading performances of Vodafone, despite this week's caution, and the display by the once seemingly forlorn O2. As if to underline that the business is expected to become even more highly lucrative there is the £18bn (200p a share) takeover bid from the Spanish Telefonica behemoth for O2.

So, as Blue Star is not slow to point out, the inviting potential that it hopes to tap into is huge. After all, there are more than 56 million handsets in this country and, importantly from the Blue Star perspective, 88 per cent of our youngsters (that is the 18 to 24 age group) have mobile phones.

There are, therefore, reasons to be optimistic about Blue Star. It is only capitalised at £2.8m and directors have 54 per cent. Still, that share performance is enough to deter any investor. At the very least it suggests caution.

However, at 10.25p, the shares could be deep in the bargain basement and, as if to disprove that stock market adage, many (including the Rothschilds) have famously scored huge rewards by betting against the herd. On that basis, I reckon Blue Star is worth a modest flutter.

cash@independent.co.uk

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