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Investment: Telewest future looks better

TELEWEST'S rehabilitation in the City has to be one of the most unlikely corporate revivals of all time. Suddenly the cable group - for so long the media sector's ugly duckling - is showing signs of growing into something resembling a swan.

Not that Telewest's interim results, released yesterday, offer much support for that view. Although penetration rates improved, they remain stuck at low levels: 22.8 per cent for television and 30.9 per cent for telephony. The best companies in the sector are getting closer to 40 per cent. Churn rates are still stubbornly high. And Telewest's income statement remains a sea of red ink: although operating losses narrowed from pounds 60m to pounds 39.9m, a higher interest bill meant pre-tax losses were more or less steady at pounds 142m.

The future, however, should be different. Its merger with General Cable, which should be completed in September, gives Telewest economies of scale and helps shift its focus to the business market - one of the fastest growing areas of telecom spending. The new Millennium package, which combines telephony and television in a low-price package, should improve penetration.

The advent of digital television will also allow Telewest to run high- speed Internet access services: the first time it has been able to offer its customers something they cannot get from the likes of BSkyB and British Telecom.

All this, plus the prospect of further consolidation and the imminent arrival of a new chief executive, has led to Telewest shares more than doubling this year. They added 7p to 160.5p yesterday. There is still a large hope factor: Telewest is unlikely to report a profit until 2002. But the group now has a better chance of success than ever before. The shares are risky, but for exposure to the booming telecom sector, worth a punt.