Telewest may have further to fall

Turbo Genset; TeleWork
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The Independent Online

Adam Singer, chief executive of Telewest Communications, had to face his shareholders at the cable company's AGM yesterday, and they were venting their anger at its precipitous share price decline. That was accelerating sharply as he spoke, wiping another 9 per cent from the company's value. Worth £16bn at the height of the New Economy boom, the company is now valued at £2.4bn.

It is tempting to accept the company's argument that, in recent days, Telewest has been unfairly caught up in the problems of its sector mates. Cable investors have taken fright at the debt built up in the expansion of the late 1990s and worry that shareholders will end up having to bale companies out. Telewest's continental peer UPC Media and its US-listed rival NTL have each lost two-thirds of their value in the past six weeks. In that context, Telewest is holding up rather well.

Since a renegotiation of its £2.25bn bank facility in the spring, Telewest has made much of how its business plan is now fully funded. Not everyone agrees, however, and the major concern is capital expenditure, which Mr Singer has promised to reduce this year. The start made on this endeavour in the first quarter was disappointing and sceptics think that day-to-day maintenance costs on its vast UK cable network will make savings hard to come by.

Mr Singer has undoubtedly raised Telewest's game in the past year, helping improve its terrible service record. Customer retention and spending per household are all on an upward trend thanks to the migration from analogue to digital TV, and there should be another boost when higher customer charges kick in next week.

Telewest is expending considerable marketing effort on bundling together its three services – telephone, interactive television and broadband internet – to increase customer loyalty. And cable's "killer application", video on demand, is ready to go as soon as the industry agrees a content deal with the Hollywood studios.

There is plenty to get excited about and earnings before interest, tax, depreciation and amortisation are expected to rise almost 10 per cent this year. But the interest charges and high maintenance capex leave management with practically no room for error.

Though the recent falls in the share price could tempt the unwary, there is still too much to prove and the stock, down 8.5p to 84p yesterday, is unlikely to have hit a low.

Turbo Genset

Could the power shortages bedevilling California be a sign of things to come? The shareholders in Turbo Genset, an alternative power generator maker, floated in London last summer after an earlier initial public offering on the Alberta Stock Exchange, will hope so. The firm, now worth £740m, makes electricity generators that operate on natural gas.

TurboGen has a one- or two-year lead over rivals like ABB and Honeywell in making 400-kilowatt generators – a size suitable for powering small office blocks, factories, shopping centres and other public buildings. TurboGen users will save 40 per cent on UK electricity prices and receive a more reliable power supply. What's more, the generators show greater efficiency than conventional power plants and offer environmental benefits.

Pratt & Whitney, the aeroplane engine maker which supplies the generator engines, is a partner. So, too, is Detroit Edison, the utility, which markets and installs the finished product to customers, mainly electricity distributors.

The company reported a loss of £3m yesterday for the nine months to April with revenue of just £11,000. At 30 April, it had cash reserves of £29m.

Investors have bet that shipments of the 400kW generator, which begin next month and are forecast to hit 130 in 2002, will, with bigger generators being planned, make TurboGen profitable by late 2003. Utilities around the world are evaluating the technology, as are the likes of BP, which could use the units to power offshore drilling platforms with natural gas available from the sea-bed.

With TurboGen stock up 9p yesterday to 430p, the company has avoided much of the market downturn. Though the opportunity is enormous, so is the risk, though a planned listing on Nasdaq next year could push the shares higher still.

TeleWork

Telework Systems, which more than doubled its profits to £6m in the year to March, makes software that enables businesses to manage their workforce to be in the most efficient place at the right time.

Those profits, on sales up 26 per cent to £21.9m, were better than analysts predicted. In the 15 years since being set up by Ian Lenagan, still chief executive, the company has never missed expectations, and it is in no danger of doing so in the coming year, either.

Some 75 per cent of forecast sales are already in the bag, so the market consensus of £8.1m profit this year looks modest, even with an economic slowdown in prospect. The company has historically increased sales in tougher times, as its products can have a demonstrable boost to its customers' efficiency within months.

But the company is too expensive. Up 7p to 173.5p yesterday, giving a capitalisation of £313m, the stock is on 10-times forecast sales. That's a big anomaly in the sector, and one that the market is likely to correct. Avoid.

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