Best to wait for Eurotunnel vision

Troubled Elan still has hurdles to clear; Don't hang up on Intec Telecom yet
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The Independent Online

Problems are never far from Eurotunnel and despite its best endeavours one always has the feeling that the company is accelerating just to stand still.

The latest wheeze is to entice those freight wagons that should be whizzing through the tunnel but aren't. Freight has stuck below 2 million tonnes a year compared with hopes of 4-5 million. The chief executive, Richard Shirrefs, has no doubt the target is attainable.

He says: "Freight operators are not getting the quality of service they want. We simply can't wait with all this expensive capacity until everyone else gets their act together. The traction quality throughout France is not good enough."

This, Shirrefs explains, has nothing to do with leaves on the line. It is railspeak for an unpunctual and unreliable service. To put matters right he is developing sidings at Folkestone where the larger wagons from the continent that are too big for British lines can come through and be unloaded.

It will take time, though, and the new freight service is signalled for 2005. Eurotunnel, as ever, needs a breakthrough now despite the success of its Shuttle service in generating extra cross-channel traffic over the past 15 years. Like freight, Eurostar passengers are running at half the levels expected and travellers who balked at taking long-haul flights after the Iraqi conflict apparently did not choose France as an alternative this summer. Quarterly figures yesterday showed revenue down 6 per cent, cars down 4 per cent, coaches down 14 per cent ... need one go on. The prospects of a dividend are as remote as ever.

This column vainly hoped for better when we suggested buying the units at 68p in April last year. They subsequently sunk to 23.5p but the fanciful campaign by the rebel shareholder Nicholas Miguet to remove the entire board has provoked interest among investors as well as apoplexy among directors.

At 57.5p, there is a chance to get out without too much pain - indeed, those who bought at the bottom can bank a handsome profit. Sell.

Troubled Elan still has hurdles to clear

Phew. That was a close shave. You could feel the relief in the air at yesterday's shareholder meeting at Elan, the Irish drug maker which came to the brink of bankruptcy in the summer.

Elan's byzantine balance sheet unravelled after the value of its biotech investments collapsed in 2001, and the company has had to sell $1.7bn of assets to survive. Now that it can pay back the debt which becomes due later this year, is it time to buy back into what was once Ireland's largest company?

Well, there are some pretty toxic loose ends still to tie. The company is being investigated by US regulators over whether its accounts misled the market, and lawyers are massing before the conclusions of the probe are announced. It could yet prove a cripplingly costly episode. On top of that, there's $450m of debt due next year and $390m the year after which, for a loss-making company, will be a struggle. Although the company was speaking yesterday as if the curtain was coming down on the disposal process, it really should sell off its anti-infective drugs or some of its contract manufacturing and drug delivery businesses.

The company has maintained spending on research and development, which it can't really afford but which is vital, since the extraordinary £1.1bn market value rests on hopes that Antegren, in the last stage of trials as a treatment for multiple sclerosis, will be a blockbuster drug. The trouble is, no news on the product is likely for a year.

With hurdles still to clear, investors should wait a while.

Don't hang up on Intec Telecom yet

Behind your monthly bill for telephone calls between different networks lies a complex world of "intercarrier billing", where these networks charge each other for carrying your voice or your text. Intec Telecom Systems makes software that follows the electronic trail and turns it into invoices for telcos such as BT, which charges other carriers an estimated £3bn a year, and is charged some £2.5bn in its turn.

Thanks to an increasingly sophisticated suite of software products and new investment by telcos in emerging markets in Africa and the Middle East, Intec has sold more in the past three months than anyone had predicted. It said yesterday that profits (before tax and goodwill) for the year to 30 September would come in at about £5m, not the £2.8m predicted by its house broker.

Optimistically, there are also "green shoots" of recovery in investment by Western telecoms carriers, who are slowly rebuilding their battered balance sheets. Profits next year ought to be at least £6m and there is scope for significant upgrades if the spending taps are really turned on. The company should also benefit from the recent acquisition of Digiquant, whose products will be useful for telecoms companies wanting to bill customers for content, such as goals or music, that they have downloaded.

Intec is one of the leaders in its field. On 29 times next year's forecast earnings, the shares (up 14.5p to 58p) look toppy, but the scope for upgrades makes them worth holding.

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