It's time to disconnect Marconi

Small is beautiful for Durlacher; No need to gamble on Sportingbet
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The Independent Online

The telecoms equipment producer Marconi remains a beacon for those who believe life is a triumph of hope over adversity. The hope is still there in the latest quarterly trading statement but followers of Marconi's past adversity will easily latch on to evidence that the recovery is a long, hard road.

Its chief executive, Mike Parton, admits that general trading conditions remain challenging and progress over the next quarter, traditionally the weakest in the Marconi calendar, is likely to be volatile.

Sales rose 6 per cent to £389m in the three months to 30 September compared with the first quarter of its financial year, but the figure is still way below the £514m recorded in the second quarter last year.

Mr Parton refers to "pockets of increased demand". He admits that it is only certain customers in some areas that are increasing their orders. The US government bumped up investment in its secure phone network just because it has money to spend at this particular stage in the budget. Such orders will not be repeated for another 12 months. The spread of 3G mobile telephony in Germany has been forced by the telecoms regulator, whose demands ease off in the new year.

Asia Pacific remains a very tough market. Margins are low, and payment terms long, so Marconi is not chasing unprofitable business there.

Given the great telecoms hype over broadband and 3G, one might have expected stronger sales by now. The banks and bondholders who took 99.5 per cent of Marconi when it nearly went bust have done very nicely. The shares have soared from 270p in May to top 500p last month. Yesterday they added 8.75p to 475.75p. Most of those stakes have been sold, so reluctant shareholders now own only about 25 per cent, still a substantial overhang that will depress the shares.

Investors who travel in hope will take comfort from "a sequential sales increase" and "further market traction". The share price recovery has, however, gone far enough for now.

Sell.

Small is beautiful for Durlacher

Durlacher, the stockbroker that caught the wave of the dot.com explosion by transforming itself into a mini investment bank for technology companies, has spent a long time struggling with the fallout since the bubble burst three years ago.

It is now focused on being an investment bank for small to medium-sized companies, an area deserted by the global giants because none can make much money doing it. Durlacher will have sliced its headcount in two by December and said only a few of the corporate deals for which it has been hired need to be successful for it to be profitable.

After restructuring costs, the group lost £1.5m in the year to June, compared with a £9.9m loss last time. It rose 2.5p to 147.5p yesterday.

This year Durlacher has tapped the market for £4m to pay off debt. It may return to shareholders again, this time to finance possible acquisitions. It is looking in the field of retail fund managers. Plenty of these companies have been languishing on the shelf for months, which should make it easy for the buyer to drive a hard bargain.

Investors were badly burnt by Durlacher's spectacular collapse, but it now seems to be back on the rails. Buy.

No need to gamble on Sportingbet

The online gaming company Sportingbet believes moves to block online gambling in the United States will prove as effective as trying to stop drinking during Prohibition. But even Nigel Payne, its chief executive, concedes the mooted law change in the US, which accounts for 57 per cent of the company's business, will have "a short-term effect".

The political pressure that has stopped some US banks accepting credit card transactions with Sportingbet is already reducing turnover. In the six months to 30 September it fell from £429m to £411m.

Mr Payne says that the company has found "a low-cost solution" to increased charges from the banks that do still want to deal with the company, although he wouldn't say quite what this might be.

Add to this a string of favourites winning in European and American football in the final two weeks of September - costing the company an estimated £2m just as it was totting up its financial results - and interim losses were up from £3.8m last time to £5.7m.

Investors can do without this kind of volatility from a company which is already trading in a legal grey area. Sportingbet shares have slipped from 72p a year ago to yesterday's close of 27.5p and remain riskier than most sporting bets. Avoid.

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