14 - 20 December 2000

Investors Corner

The Market
Leading shares closed the week firmly though off highs, inspired by Wall Street’s post-data gains – with figures seen as broadly in-line with market expectations – but with sentiment undermined by the drawn-out political vacuum across the Atlantic. Total US non-farm payroll employment rose by 94,000 in November, below consensus forecast for a 144,000 increase. The US unemployment rate in November was up to four per cent last month compared with 3.9 per cent in October, in line with market expectations.
However, average hourly earnings in the US rose 0.4 per cent in November, slightly higher than the consensus forecast for a 0.3 per cent rise. Market analysts said the figures suggest a soft landing for the US economy, adding to comments from Federal Reserve chairman Alan Greenspan concerning a likely move back to a neutral from a tightening bias at the next FOMC meeting on 19 December.
In London, the FTSE 100 index closed the week 56.9 points firmer at 6,288.3, drifting further below its late morning peak at 6,343.1. All the broader FTSE indices also held firm, with the techMARK 100 index up 56.73 points at 2,794.64 as Nasdaq rallied. Volume on Friday in London was solid, with 1.742 billion shares changing hands in 99,716 transactions.
Leading UK shares opened the day’s trading higher, as investors gave a measured reaction to Intel’s after hours profit warning, noting that its shares rose after the announcement, which suggested the market had already priced in the bad news. Shares remained firm midmorning, just holding below their earlier session highs – albeit in modest trading – as selected tech issues staged a recovery thanks to some bargain hunting. Early afternoon trade saw leading shares holding on to their gains, just slipping back further from the morning’s strong session peak after the latest US jobs data.
Technology issues held on to their gains, after rebounding from Motorola-induced falls, thanks to a strong showing on the Nasdaq index – with the after hours profit warning from Intel priced in to stock following its 25 per cent slide over the past week. Soon-to-be demoted Bookham Technology was back at the top of the FTSE 100 risers at the close of trade, putting on 170 pence at 1,350 pence, with fellow blue chip tech outcast Baltimore adding 22 pence at 415 pence. ARM Holdings shook off any worries over the warnings from Intel and Motorola, taking on 30 pence at 635 pence.
Telecom blue chips also rallied as the Motorola warning impact waned, with market heavyweight Vodafone rallying 1-3/4 pence to 265 pence, and BT adding 34 pence at 661 pence – with BT lifted as well by a rumoured upgrade to “buy” from “hold” from blue blooded broker Cazenove.
Spirent also saw good demand after unveiling a strong take up for its recent rights issue, representing around 86 per cent in total, or about 95 per cent if shareholders ineligible to take up the rights are taken into account. The cash call proceeds will be used to fund the group’s acquisition of Hekimian Laboratories of the US Spirent shares were 45 higher at 620.
Financial issues were also in the limelight, notably with Abbey National, after press reports suggested that Lloyds TSB is reportedly considering making a hostile attempt for Abbey after its friendly approach was rebuffed. Lloyds TSB announced that it still believes a combination with Abbey National would be in the best interests of both firms and their shareholders. Lloyds TSB added that it is therefore considering its position.
Meanwhile, Abbey National said the combination deal proposed during talks with Lloyds TSB was “unattractive” and discussions would not be pursued, dashing rumours that the two banks could agree a friendly merger. Lloyds TSB shares reversed earlier losses, but Abbey National went into retreat after the speculation bounce. Abbey shares lost 6 pence at 1,092 pence. Bank of Scotland – Abbey’s intended take-over partner – shed 4 pence at 687 pence.
Alliance & Leicester stayed firm after a positive pre-close season analysts’ meetings update, adding 27pence at 675 pence with its current trading in line with hopes. Prudential stayed in focus on relief at the news that it has terminated bid discussions for Equitable Life. Prudential shares earlier rose on relief that it won’t have to tangle with Equitable’s problems, but talk that it will simply turn its attention elsewhere saw the stock lose 8-1/2 pence at 1,070-1/2 pence.
“Old economy” issues continued to dominate among the blue chip losers, as investors moved to take advantage of recent gains: Rentokil Initial fell back 10 pence at 197 pence, Invensys fell 7 pence at 165 pence, Granada Compass shed 42 pence at 630 pence. On the second line, radio stocks remained sharply higher following a dawn raid on Scottish Radio shares by SMG.
Scottish Radio shares leapt 295 pence higher to 1,502-1/2 pence – up nearly 25 per cent – as SMG confirmed it had amassed a 14.9 per cent following on-market purchase during the morning, having declared earlier in the day that it had acquired a 2.9 per cent stake in the radio group for which it was thought to have paid £15 a share. SMG said it has no current intention of launching a
full take-over bid for Scottish Radio, but reversed
the option to do so should another bidder emerge. SMG shares gained 21-1/2 pence at 263-1/2 pence as investors welcomed the move. Scottish Radio shareholders advised its shareholders to take no action.
Fellow radio second liners got a boost from the sector bid moves, as well as from upgrades in ratings by HSBC Securities on hopes for a more relaxed regulatory regime for radio in the government’s impending Media White Paper. Capital Radio shares jumped 187-1/2 pence to 1,287-1/2 pence, with HSBC upping it to “buy” from “hold”, while GWR firmed 50 pence at 630 pence as the broker also upped its stance to “buy” from “add”.

Vodafone AirTouch
Vodafone, the mobile telecoms operator, reported that it made substantial progress on the integration of Mannesmann, with agreements for the sale of non-core assets for an aggregate value of £35 billion. Meanwhile, group net debt at 30 September 2000 of £13.2 billion represented 8.5 per cent of the group’s market capitalisation, after payment for 3G licences in the UK, the Netherlands and Germany.
In Germany during the first half of the financial year, total churn was 10.5 per cent compared with 14.8 per cent in the year to 31 March 2000. This was due in part to the increased proportion of prepay customers connected to the network. At 30 September, over 50 per cent of the total base was connected to the prepay tariff, “CallYa”, compared with over 30 per cent at 31 March 2000, while Average Revenue Per User (ARPU) declined to EUR 487, as a result of the mix of customers. Vodafone’s D2’s ARPU is still above the level of most comparable mature networks.
D2 was also the first mobile network in Germany to carry General Packet Radio Service (GPRS) calls during the period to 30 September 2000, and the commercial service is expected to be launched in the first calendar quarter of 2001, subject to handset availability. In August 2000, D2 was successful in acquiring a licence to operate UMTS services in Germany for EUR 8.4 billion. This was one of six licences awarded, including licences to two new operators. D2 expects to launch service in 2002, subject to handset availability.
Meanwhile in Italy, the government is in the process of issuing five licences to operate UMTS services. Following completion of the auction process on 23 October 2000, OPI has been assigned a UMTS licence for approximately EUR2.5bn. In the Netherlands, in early September, Libertel tested its GPRS capability, the first mobile network to do so in the Netherlands. Commercial service is expected to be launched before the end of 2000, subject to handset availability. Libertel’s WAP facilities are being developed through the network’s cooperation with Vizzavi Netherlands, in which it owns a 20 per cent interest.
In September 2000, Vodafone’s Europolitan submitted an application for one of four licences to operate UMTS services in Sweden. The government is expected to award the licences by “beauty contest” before the end of November 2000. Meanwhile in Spain, through a number of agreements entered into in January, July and September 2000 Vodafone has agreed to acquire an additional interest of 52 per cent in Airtel, increasing its holding to a controlling interest of 73.7 per cent. Subject to the receipt of regulatory approvals, the transactions are expected to be complete by the end of 2000.
In the UK, SMS experienced strong growth in the period. The number of messages being carried on the network in September 2000 increased to over 160 million compared with 49 million in September 1999. Successful field trials of GPRS have been undertaken and full customer trials started in November, with live network rollout already under way. GPRS is expected to be in commercial service during the first half of 2001.
Following the award of a 3G licence in April 2000, Vodafone has begun an implementation programme with the commercial launch of 3G services in the UK currently anticipated for April 2002. The UK internet portal experienced increasing activity during the period, with over 75,000 active customers being registered at 30 September 2000. Migration to the new Vizzavi multi-access portal, which offers a range of services that will bring information from the Internet to the PC, mobile phone and WAP mobile, took place in September.
Vizzavi Europe received clearance from the European Commission, in July 2000, to operate its proposed services in Europe. The Vizzavi brand for the multi-access portal has been launched in France, the UK and the Netherlands, and is expected to be launched in Germany and Italy by the end of the year. The UK will be the first country in Europe to adopt the Vizzavi platform by the end of this year. Launch in other European markets will then follow throughout the next financial year. The global internet platform and Vizzavi brand is also being introduced in regions other than Europe, with its launch in New Zealand during November 2000 to be followed by Australia in January 2001. With the majority of UMTS licences now purchased, and Vodafone’s disposal programme largely complete, the strength of the group’s balance sheet will enable it both to continue to fund the ongoing needs of the business and at the same time take advantage of opportunities to expand strategically and geographically as they arise. Analysts expect significant improvements in the percentage growth figures for both operating profit and EBITDA in the group’s full year figures.