Tie burns bright, but will the company sparkle?

City & Business
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The Independent Online
I'M NOT sure what the stuffier City investment institutions will make of Hans Snook, but I rather warmed to him. Mr Snook, an Anglo-German raised in Canada, is managing director of Orange, the mobile phone company planning a stock market debut next month. He has a beard - black mark number one for investors brought up to distrust facial hair. He is liberally sprinkled with gold and his Rolex is awash with diamonds. His lucky tie - "I wear it to all my presentations," he told me last week - is the colour of a Belisha beacon on fire. Eat your heart out, Sir John Harvey-Jones.

Mr Snook has been spectacularly successful. In two years, he has built Orange from scratch into a serious threat to the established operators Cellnet and Vodafone. His task over the next few weeks is almost as challenging.

He has to convince prospective investors that Orange - a company that has yet to make a penny profit - is worth more than, say, Carlton Communications or Blue Circle Industries or Thames Water.

Tomorrow, 620,000 letters go out to Orange subscribers and other customers inviting them to register as prospective investors. The pathfinder prospectus is published early next month, and then the serious business of wooing institutional investors begins. If all goes according to plan, Orange will come to market at the end of March with a valuation of between pounds 2.6bn and pounds 2.8bn.

The last time investors were asked to suspend disbelief and invest big- time in a loss-making company was when a clutch of cable television companies came to the market. Sure, cable might look risky, they were told: all the costs come upfront, but once the networks are built, cable just churns out profits.

A year down the track, however, shares of the cable operators are substantially below their offer prices. Investors may ultimately make money but are nursing charred fingers in the meantime.

Orange is more proven than the typical cable company. It has a national franchise and a strong brand. The network covers 90 per cent of the British population, though much less of the territory. Its service is digital, rather than crackly analogue. And, most potent of all, it is gaining market share.

There are a few loose ends to tie up: the appointment of some heavyweight non-executive directors would be a good start. Investors will need to see the prospectus before coming to any firm conclusions about the company. But, short of a stock market crash, the float seems perfectly feasible: intuitively it seems likely that mobile phone ownership and usage will continue rocketing. And Orange - cheaper, friendlier and with more capacity than its rivals - looks well placed to exploit that demand.

The prospectus will include a hefty US-style "health warning", listing the various risks that could hit the shares. Orange's advisers are naturally playing this down, stressing it is the normal warning that the American authorities insist on for every company trying to attract US investors.

Maybe so. But the brutal fact remains that investors in Orange will be paying the equivalent of pounds 7,000 per signed-up subscriber. Not cheap by any measure. Would-be investors should read the health warning with more than usual care before taking the plunge.

Buying the Crazy way

UNLESS you live in the poorer suburbs of Birmingham, Merseyside or Manchester, the chances are you will not have come across Crazy George's. It is a small chain of shops selling furniture and electrical goods to the poor on an instalment basis.

These "rent-to-own" stores are well liked by their customers, who have neither the cash nor the credit record to go to more conventional outlets. They are usually on first-name terms with the staff. References are taken up, but there are no credit checks. Customers take delivery of the product at once and pay weekly instalments for usually three years. It is a modernised and more flexible form of the never-never.

The format has been a stunning success for the owner Thorn EMI. Absconding customers are rare. The shops are exceeding their financial targets. There are 24 Crazy George's so far, and new ones are opening at the breakneck pace of one every 10 days. There will be 70 within 12 months and Thorn EMI reckons the eventual store population could be several hundred.

The extraordinary success of Crazy George's is intriguing on several levels. First, it tells us that despite 50 years of continuously growing prosperity and one of the most sophisticated financial systems on earth, Britain still has millions of people who have neither the cash nor access to credit to make really quite modest purchases. Thorn reckons seven million households - one-third of the total population - are "cash or credit constrained".

Second, people are prepared to pay seriously over the odds to take possession of tomorrow's desire today. A Crazy George's customer pays pounds 2.99 a week for three years for a Whirlpool spin-dryer, a total payment of pounds 466, as against a cash price of pounds 211. This works out as an interest rate of 29.9 per cent - collossal when you consider that inflation is now less than 3 per cent.

Third, the cashless society as envisaged by banking and IT consultants is still a million miles away from reality. The vast majority of Crazy George's customers make their weekly payments in person and in cash. For most customers that means 450 separate visits to the shop.

In other words they devote 30 man-hours or more to buying a product that is already costing twice the normal price. To a theoretical economist, it is completely irrational behaviour. But it nevertheless happens.

Fourth, and of particular interest this week, the phenomenon is good news for Thorn EMI, as it prepares to break itself in two (see opposite). Crazy George's is in the unglamorous rump Thorn business, and could help spark investor interest in the company. To most people Thorn means Radio Rentals and Rumbelows. In fact, Radio Rentals represents a tiny share of the company's sales and Rumbelows is no more.

Thorn will be knocking on the door of the FT-SE 100. It could have a stock market value of pounds 2bn or more. But Thorn EMI needs to embark on a serious City education campaign first.

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