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Investment: Cellnet holds the key to Securicor's value

FEW COMPANIES divide City opinion as starkly as Securicor. One set of observers thinks the security and communications group's shares are grossly undervalued. Others think the exact opposite.

Yesterday the bulls had their say as BT Alex.Brown, the broker, slapped a 520p target on the shares, with a longer-term value of 700p. The shares closed up 5p at 415p.

The debate about Securicor hinges on the value of its stake in Cellnet, the mobile phone network. Soaring valuations for quoted mobile operators Orange and Vodafone have dragged up the implied worth of Securicor's 40 per cent shareholding, propelling its shares into the FTSE 100 index.

Despite the recent slump - Orange shares are 34 per cent below their peak - the bulls reckon Cellnet is still worth at least pounds 6bn, valuing Securicor's stake at around pounds 2.4bn.

They add on another pounds 1bn for the group's security and distribution operations, a figure roughly in line with their forecast revenues. Knock out pounds 200m of debt and the whole group is worth about pounds 3.2bn - equivalent to 530p a share. If mobile stocks rebound, the value is higher.

The key question, however, is whether Securicor will ever get full value for its Cellnet stake. The only credible buyer is majority shareholder British Telecom, which already runs the business.

Government opposition to a deal has eased, opening the way for BT to make an offer next year. But there is no reason for the telecoms giant to pay Securicor the market value for its stake. It has already opposed other options, such as a stock market flotation of Securicor's stake.

Even at current levels, Securicor shares assume an unusual amount of generosity from BT. With the deteriorating economic climate likely to affect the security and distribution businesses, this is a punt that shareholders can afford to miss. Avoid.