Outlook: Calling the top of the telecom market

WHAT WOULD the City do without telecom companies? In a market where Unilever decides to hand back pounds 5bn to its shareholders, and even a gilt-edged growth stock such as Smithkline Beecham apparently decides it has more cash than it knows what to do with, fund managers are struggling to spend the mounds of cash flowing into their coffers.

So they must have breathed a collective sigh of relief yesterday when two telecom operators decided it was time to raise some money.

Colt, the brash telecom operator whose share price has trebled since October and has yet to make a penny of profit, wants another pounds 500m of spending money even though it hasn't made yet made much of a dent in the pounds 600m it raised last July.

And Hutchison Whampoa, the Far Eastern group, decided to offload a 5 per cent stake in Orange, the mobile phone operator whose share price performance has been only slightly less spectacular than Colt's, raising a cool pounds 430m.

While the likes of William Hill have to call off their flotations due to lack of investor interest, fund managers can't get enough of the telecoms sector. This is partly due to technical factors, as both Colt and Orange have large corporate shareholders, which means that tracker funds drive up the price in order to get the weightings they need.

But the market also seems truly convinced that the blue-sky growth potential in telecommunications will justify almost valuation. Colt, for example, is worth pounds 7bn even though the total capital invested in the company - including yesterday's fresh injection of funds - amounts to no more than pounds 1.5bn.

As long as investors are happy with these ratings, telecom operators would be mad not to raise as much cash as they can. But let's hope that, in their eagerness to find a home for their spare cash, fund managers don't end up throwing bad money after good.

Yesterday's cash call from Colt, and Hutchison's decision to reduce its shareholding in Orange, may just indicate, at last, the top of the market for a mightily hyped sector.

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