Olivetti climbs back into favour

LAST YEAR, when Olivetti invited fund managers to come and hear how the Italian computer company planned to staunch the billions of dollars in losses it had suffered since 1991, few investors bothered to show up.

"It wasn't a stock we took seriously and thought worth having," said one of those who shunned the meeting, Paolo Bartalucci at Grifogest, a Florence-based fund manager.

Everyone takes Olivetti seriously now. The company, having shed much of its hardware business and re-emerged as the biggest cellular and fixed- line rival to Telecom Italia, has seen its stock rise six-fold to L3,906 (pounds 1.35) in the last 12 months. In that time, it's the best-performing stock in Italy's Mibtel index.

"No one expected this to happen," said Mr Bartalucci. "Olivetti is a completely different company today. In its old line of business, if you're not the world leader you're in trouble. Now, in telecoms, it enjoys a protected franchise."

The City is a major investor in Olivetti after a number of complex refinancing deals.

Omnitel Pronto Italia, one of Italy's two mobile-phone companies, is the engine of Olivetti's share rise. Olivetti owns a controlling 30 per cent stake in Omnitel through Oliman, a joint venture with its German partner, Mannesmann.

In two and a half years Omnitel has won one-quarter of the Italian market and, with 4 million users, become Europe's fourth-largest cellular phone company.

Omnitel showed a profit one year ahead of target, earning L234 bn in the first half of 1998.

Infostrada, Olivetti's fixed-line telephone unit, will follow Omnitel as the Italian telecommunications industry's next success story. Analysts estimate Infostrada is worth between L2,000bn and L4,000bn - as much as three times Olivetti's entire market capitalisation last August.

With 4,000 business clients, Infostrada has already become Telecom Italia's largest competitor. The company forecasts sales to rise to L1,000bn in 2000 from L120bn in 1997, and it will turn a profit in 2002.

"Omnitel and Infostrada are all that investors care about in Olivetti," said Jonathan Shantry, an analyst at Credit Lyonnais.

This was not the case in the early 1990s, when Olivetti, based in Ivrea, a town in the Alps north of Turin that still calls itself "Informatics City", was known to the world as a maker of personal computers and networking systems.

The PC division was the first to go after Roberto Colaninno took over as chief executive in 1996, as the company's cumulative losses since 1991 reached L4,770bn and investors ousted the chairman, Carlo De Benedetti.

Olivetti's share gains have also been partly down to the perception that the Italian company is an easy takeover target."There is growing interest abroad in Italy's promising telecoms market," said Paola Toschi, an analyst at AFV-Milla SIM in Milan.