Orange is still a leap of faith:The Investment Column

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The Independent Online
Markets can be cruel to recently floated growth stocks if they are priced too aggressively and Orange has been no exception. Investors who paid 205p in April's flotation have had a nail-biting time over the past few weeks, watching the share price climb to a peak of 254p, only to dive to a low of 173p. The future apparently wasn't as "bright" for shareholders as the company's undeniably slick publicity had suggested. Yesterday things began to perk up again, even though Orange reported a 40 per cent increase in its half-yearly losses to pounds 125.2m. The share price climbed 6p to 193p.

The problem investors have been experiencing is that not even Orange's impressive technological wizardry has allowed anyone to travel into the future to see how much of the company's undeniable promise can be translated into hard profits.

Optimists can point to a mass of statistics which show Orange's impressive customer loyalty. "Churn" rate - the pace at which customers switch to other networks - fell from 18.1 per cent in the first half of 1995 to 17.6 per cent in the first six months of this year. That compares with Vodafone's last published figure of 25.6 per cent at the end of March and 30 per cent for Cellnet.

More impressive is the fact that Orange's average monthly revenue earned from each customer rose from pounds 36.51 to pounds 36.86. It may not seem much, but analysts had expected revenue per head to fall as lower-spending customers joined the network. So not only are Orange's customer loyal, they are also - probably - better customers than those of some other networks in terms of spending power.

That's the good news. According to more pessimistic analysts, however, there is an equally worrying downside. The City consensus is that Orange will lose pounds 250m this year, up from pounds 140.5m last year as it continues to spend heavily on building its network. By anyone's standards these are big numbers. Vodafone, on the other hand, will make around pounds 500m just from its UK operations, with Cellnet expected to make pounds 230m. Investors are unlikely to see any profits worth mentioning until 1998-99, and dividends may come later still. Orange remains a leap of faith.