investors' corner
The Market
Leading blue chips closed the session and the week sharply lower, hit hard by a continuing rout in technology, media and telecoms (TMT) issues, as the market reacted to the latest falls on Nasdaq as investors continued to bale out.
On Friday, the FTSE 100 index closed down 187.5 points at 6,045.4, just above its 6,039.1 low of the day, but well off an earlier high of 6,237.6. The broader market indices all extended their declines - with the techMARK suffering substantial falls, shedding 291.9 points to close at 3,052.19. Volume was a respectable 1.4799 billion shares in 115,699 trades.
"New economy" stocks had a rocky ride throughout the session, with the FTSE 100 index moving lower in early deals following the heavy sell-off in the tech stocks in the US overnight as investors continued to question valuations. Despite the shake-out seen in global markets in the past three months, there seems to be a growing belief that there is still further to go on the downside, especially if growth in "new economy" profits shows any sign of faltering.
The market moved deeper into negative territory as the morning progressed, with a shock profits warning from IT software group Parity setting the alarm bells ringing. With the focus clearly on "new economy" issues and their likely near-term performance, the expiry of the FTSE 100 index options contracts passed relatively unnoticed, as did the April M4 and public sector debt data.
"Old economy" stocks were the major beneficiaries of the shift in market sentiment, but even here the gainers were few and far between. Thus the drift lower continued towards midday, when players here began to fret about a further slide in New York when trading began. The market's worst fears proved to be founded, with both the Nasdaq composite and DJIA posting hefty declines at the opening bell as the tech rout continued and interest rate concerns returned to the fore.
Sentiment was not helped by the profits alert in Parity and news that broker Nomura International has downgraded a raft of IT services stocks - questioning when IT departments will be comfortable enough to invest heavily again in new products and standards. Baltimore was one of the major losers, 70 pence off at 419 pence, followed closely by Psion, 99 pence down at 562 pence, Logica, down 249 pence at 1,406 pence, and ARM Holdings, 70-1/2 pence lower at 615-1/2 pence.
Anglo-Dutch giant CMG shed a further 492 pence to 3,521 as HSBC Securities cut 2000 EPS estimates for the group after this week's mixed AGM statement. Internet portal Freeserve was also on offer, down 41-1/2 pence at 388-1/2 pence, despite talk that T-Online is back on the acquisition trail. Over recent weeks, there have been rumours in the market that the two could be close to a link-up.
Sector sentiment was further undermined by a profits warning from Parity Group, which blamed the expected shortfall in profits on tough trading conditions for its traditional businesses. The group also warned of a planned £7 million of further investment costs related to the development of its new e-business.
Parity dropped 47 pence to 162 as sector followers put in place some swingeing downgrades for the current year. Some of the more cautious brokers also warned that the hoped-for improvement in IT spend, following a dismal first quarter after the Y2K boost last year, may be delayed until the end of the year.
Telecoms stocks were affected by the nervousness surrounding "new economy" issues and on news that Deutsche Telekom has fallen through a major support level. Marconi could not therefore have chosen a worse day to release its maiden results as a pure telecom equipment company, with top of the range full-year figures offset by the general sector caution and some hefty profit-taking after recent strong gains.
But the underlying message at Marconi remains very positive, with the group confident on the full year outlook and order book levels running at "an all time high". The stock fell back 111-1/2 pence to 765-1/2 pence, though UBS Warburg Dillon Read was a buyer up to 1,025 pence. Deutsche Bank was also a fan, repeating its "strong buy".
British Telecom slid 41 pence at 881 pence, with HSBC reducing its 2001 and 2002 pre-tax estimates for the telecoms giant in the wake of the announced figures. The broker did, however, repeat its "buy" on BT, though it prefers Cable & Wireless, down 46 pence at 987 pence, and Energis, down 311 pence at 2,200 pence. The drift lower in FTSE heavyweight Vodafone AirTouch continued, down 22-3/4 pence at 242-1/2 pence, with Colt Telecom down 207 at 1,842, and Telewest Communications, 37-3/4 pence down at 237-1/2 pence.
Burmah Castrol advanced 36 pence at 1,646 pence, following news BP Amoco has received regulatory approval for its planned take-over. The hike in the oil price sparked renewed interest in the smaller E&Ps. Enterprise Oil gained 21 pence at 513 pence and Lasmo was 1-1/4 pence firmer at 119-1/4 pence.
UK Smaller companies ended the week down, as the afternoon session saw all the wider FTSE indices close sharply lower, while Wall Street continued to post early losses as investors liquidated their tech and telecom holdings. The FTSE Small Cap index closed down 23.4 at 3,199.6 - its low of the day - well below a high of 3,223.6. Bid news continued to generate interest within the Smaller Cap leaders, with James Finlay remaining in demand, up 28-1/2 at 97-1/2, after last night's £101 million agreed offer from John Swire & Sons.
Energis
Energis, one of the more established new telecoms entrants, reported a loss of £ 41.1 million for the year to 31 March. The group's chairman claimed that Energis continued to strengthen its products and services portfolio to deliver differentiated applications to meet customer needs now and in the future.
The business communications division is increasingly exploiting the power of the internet and fusing together internet and data services. This is being accelerated through the emergence of a fully e-commerce enabled economy. Web-hosting, E-commerce and the Application Service Provider Model are at the heart of this boom, and Energis, with Planet Online, is well positioned to benefit from this. It has WAP-enabled its hosting capability and through its WAP internet gateway, Planet Online will be able to offer corporates WAP enabled hosting and e-commerce solutions.
WAP services complement Energis' market position in web-hosting, which continues to strengthen. The telco is also actively moving its hosting capability up the internet value chain by unveiling its Application Service Provider (ASP) service. Energis' ASP offering will be rolled out in two phases. Phase one will be based on Microsoft Office 2000 and Microsoft 2000 Exchange services, Phase two will include Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Managed PC solutions.
Energis is working with a number of partners to deliver this development technology and support will be supplied by Microsoft and hardware and services from Compaq. Network performance and security infrastructures will be provided by Cisco, with business expertise and consultancy from Deloitte & Touche. Utilising the ASP services will enable customers to take their business online with the additional benefits of speed, reduced costs and low maintenance. Eurocall Energis is developing data and internet services targeted specifically at the SME market.
Energis is also taking a range of steps to increase the access of its UK network. Further network in the West End of London is due to come on stream in autumn this year. It now has 1,600 2Mbit circuits allocated to customers, an increase of 88 per cent since it last reported. In addition, Energis has increased the number of break-out points in its network from 20 to 65, thereby cutting the cost of circuit tails, improving margins and bringing its network closer to its customers.
Energis is now extending this programme to connect directly to the great majority of BT's Digital Local Exchanges (DLEs). Initially, access to these exchanges will be for unmetred internet services, which it intends to launch in June 2000 in line with BT's Surftime II service launch. By the end of the financial year, Energis will be able to collect over 80 per cent of its forecast unmetred internet traffic from BT's local exchanges reducing its outpayments, helping to improve internet margins and enabling ISP customers to offer more innovative services.
This programme will position the telco to take advantage of local loop unbundling, enabling it to provide broadband end-to-end delivery and service to its customers through the deployment of DSL (Digital Subscriber Line) technology. In the UK, Energis is one of the appointed DSL trialists and will run trials from the end of the year.
Energis is also evaluating point to multi-point broadband radio to complement its fixed line access strategy. The government is expected to auction regional licences at 28 GHz and 40 GHz spectrum in the autumn. It remains Energis' current intention to bid for licences, at an appropriate price. In fact, it is currently testing a 28 Ghz spectrum to assess the reliability and performance of the technology.
Meanwhile as part of its European strategy Energis is participating alongside National Grid, in a consortium to establish a new telecoms operator in Poland. The service launch is expected by the year-end. It plans to expand its continental European footprint through further strategic moves. It has plans to build three additional City fibre networks in The Netherlands during 2000/2001, giving Energis NV a total of four. The first of these new networks will be in The Hague. To complement this, it will be completing a DSL trial, in which it will be co-locating equipment with KPN in seven locations across The Netherlands.
Energis combined its German acquisitions and its internet datacentre in Frankfurt into one business unit with offices in Munich, Hamburg, Frankfurt and Berlin. Its core network which will consist of over 4,100 fibre kms and some 690 kms of city network will be operational by the end of June 2000, offering hosting and e-commerce, internet access and managed bandwidth services. A range of enhanced services, which come on stream from summer 2000, will follow these.
Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future.
| 
