Squeezing Orange until the pips squeak
Friday 15 August 1997
It would take a long telephone call to explain all the details. Suffice it to say that because of the way Orange's future cash flows are valued, high interest rates do unpleasant things to its share price.
Since the business was floated in March last year, the shares have underperformed the market by a thumping 30 per cent (partly because of the slow ratcheting up of interest rates). This is despite the company having met all its internal targets for connections, revenues and "churn rates", the mobile industry's explanation of what happens when the first bill hits the doormat and the customer unplugs his telephone.
Now, however, Orange is gambling the share price and the rest of the farm on a huge expansion in both its services and network coverage which will involve bringing forward pounds 400m worth of investment originally scheduled for the next century. Stand by for narrow band TV, video telephony, home shopping and even virtual banking, all downloaded via your mobile. Soon they will have to have whole trains for mobile phone users, not just separate carriages.
Orange is confident its balance sheet can withstand the pressure and points to a whole raft of reasons why - a 35 per cent share of new subscribers, the lowest churn rate in the industry, etc etc. Why, at this rate, it might even make a profit next year.
The snag, as Orange tacitly admits, is that the mobile phone remains a far from perfect tool for communication which makes the idea of spending large sums to pump more information down it a doubly risky business. Users do not have to be in the Outer Hebrides to find it difficult picking up a signal.
That is why Orange is having to double its network of base sites at enormous cost just to increase coverage from 95 to 98 per cent of the country. Orange says this is a gamble worth taking since its research shows that more people are switched off mobiles by their poor coverage than their cost.
Time will tell. Orange's low churn rate partly reflects the fact that a larger number of its customers are still awaiting the chance to churn. The pips could really begin to squeeze then.
Same old story at Albert Fisher
Albert Fisher has been a whopping disappointment of a business and even now is being denied a swift and relatively painless death. Its mystery bidder has scarpered, frightened no doubt by some of the horrors in the portfolio such as cockle collecting and halibut filleting.
So we are back to the same old story, collapsing share price, analysts reigning back forecasts, investors wondering why they bother holding the stock. Yet as this woefully underperforming business limps on there is talk that its chairman, Stephen Walls, is looking for a better job more commensurate with his abilities. If true, this is a bit rich. Since he was appointed non-executive chairman in July 1992 the shares have under- performed the FT All Share by a thumping 70 per cent. In that time profits of pounds 21.5m have been transformed into losses of pounds 110m last year. Margins are a pitiful 3 per cent.
A takeover would have secured a spectacular hat-trick of pay-offs for Mr Walls after hitting the jackpot at Plessey and Arjo Wiggins Appleton. It is true that Mr Walls inherited a rag bag of low-margin food businesses spread across too many geographical areas. The criticism is that after five years in the post he has only succeeded in turning it into, well, a rag bag of low-margin businesses, spread across too many geographical areas. It is none too impressive. Before Mr Walls next jumps ship for another job, he should concentrate on making a better fist of the one he's got.
Scottish is right to bang its own drum
As fast as Gerry Robinson talks ITV into consolidating into one company, Gus MacDonald is erecting barbed wire around the Celtic fringes of the television map. His latest foray - Scottish Media Group's purchase of a 14.9 per cent stake in Ulster Television - is designed to cement the links between those ITV companies who think that the future lies in regional diversity, not consolidation into one homogenised channel.
Of course Scottish has its own self-interest at heart. It already owns Grampian and, although its says it is not interested in Border, the more franchises it can bolt on the more difficult it will be for one of the big three to swallow Scottish without bumping up against the ownership ceiling.
But Scottish is surely right to bang the drum for independence and diversity in the face of the rapid annexation of the industry by Granada, Carlton and United News and Media.
There is scant evidence that programming would get any better, or appeal more widely to advertisers and overseas markets if 15 franchises were reduced to one.
The Scottish experience is that the further away viewers get from the metropolitan influences of London the less they watch a single national channel such as BBC, preferring instead to tune into local ITV. Scottish and Ulster also get a higher percentage of revenues from local as opposed to national advertising because advertisers, like viewers, prefer local programming.
This will not deter Granada's Mr Robinson from talking his book. But as long as Mr MacDonald's marauding parties are in action, it reminds everyone that another and better alternative exists.
Glad to see the back of Julia and Richard
Just as the housing market threatens to overheat again, a blast from the past to bring everyone back to earth. Remember Julia Verity and Richard Spindler, the odd couple who took out a mortgage with Lloyds thinking the housing market was a one-way bet and then sued when, surprise, surprise, it turned turtle and left them in a sea of negative equity?
Well, they are back with the thrilling news that their seven-year legal battle with the bank is over with both sides having settled for a draw. Not quite a draw actually since Lloyds is almost certainly out of pocket because its counter claim was bigger than the award against it. "We have gained inner strengths and a resolve and determination that we could not have imagined we had in us," trills their press release.
Bully for them. For the rest of us the banks and building societies continue to value properties very conservatively for mortgage purposes, making it difficult for first-time buyers to join the market.
In part this is due to their experience with the likes of Julia and Richard. Lloyds is surely not the only one to be glad to see the back of them.
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