Investors should be encouraged by the strategies unveiled by Dick Brown, C&W's group chief executive. Plans to raise pounds 1bn from disposal of businesses in which C&W does not have management control pleased the market yesterday.
The figures were a pleasant surprise too. Before tax and exceptional items, profits for the six months to September rose 9 per cent to pounds 797m, above market expectations. In the past year, the group's customer base has increased by 50 per cent to more than 15 million, and its mobile business is adding a healthy 50,000 new customers a week.
Hongkong Telecom reported an 11 per cent increase in turnover, and the Americas delivered double-digit growth in the first half. The profits included five months' contribution from the UK telephone and cable TV business, Cable & Wireless Communications - formed from a four-way merger of Mercury Communications, Nynex, Bell Cablemedia and Videotron. C&W took a pounds 200m charge to restructure CWC, but has promised to deliver synergy benefits in excess of pounds 100m by the end of the financial year.
More generally, the recent interest in long-distance US phone businesses such as MCI could boost the valuation of C&W Inc, the eighth-largest long- distance business in the States, as companies like BT get hungry for acquisitions again.
But there is a downside. Profits would have risen 14 per cent in the six months were it not for the adverse effects of currency. That remains a risk. Likewise, although Far Eastern turmoil failed to impact on the share price yesterday, investors should be warned that C&W's control of Hongkong Telecom still leaves the company exposed to the vagaries of the Hong Kong market.
On Merrill Lynch pre-tax forecasts of pounds 1.5bn for 1998, C&W trades on 17.7 times for 1998. Worth a flutter.