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January 6, 2004
Cable & Wireless needs Caribbean, UK focus after topping FTSE Index
Web Posted - Tue Jan 06 2004
The future fortunes of Cable & Wireless Plc are very much in the hands of its Caribbean and UK operations.
The company, whose shares last year topped the UK benchmark index with their biggest gain in at least 15 years, must reverse declining revenue at its UK unit and boost regional sales to send the stock higher.
Robert Kuin, who manages about $186 million of telecommunications stocks at the Paris office of Fortis Investments Ltd, in recent comments in the international Media said the future of Britain’s second-largest phone company lay in “operational improvements” in its Caribbean and UK businesses.
Before last year, Cable & Wireless stock was the FTSE 100 Index’s worst performer for two years. The shares were worth 44 pence last January and tripled in the following 12 months to 133.5 pence. In the same period, the FTSE rose 14 per cent. About 7.9 billion Cable & Wireless shares traded in 2003, more than any other year since at least 1989.
Chief Executive Officer Francesco Caio took charge in April and within two months said the 131-year-old company would exit the US, restructure the UK division and develop its national businesses. In December, he put the American unit under Chapter 11 bankruptcy protection and agreed to sell it. Investors and analysts now want Caio to make good on his other pledges.
“People will want to see some kind of evidence of execution to justify any upward rating,’’ said Matthew Bloxham, an analyst at Goldman, Sachs & Co. with an “in-line” recommendation on the stock.
In the Caribbean division, the company’s second-largest, fiscal first-half sales dropped 16 per cent to 341 million pounds after international calls opened to competition in Jamaica in March and because of an 18 per cent decline in the Jamaican dollar against the UK pound.
Caio has dismantled the company’s Global and Regional units, handed local managers their own balance sheets and made then accountable to London.
“In the early part of 2004, the fundamentals are going to struggle because of the currency effects,’’ said Goldman’s Bloxham.
The Jamaican dollar slipped 8.7 per cent against the British pound in the last three months, the Japanese yen fell 3.2 per cent and the US dollar declined 6.9 per cent.
After a year of suspended dividends, Cable & Wireless hasn’t yet decided on a payment to shareholders for the year ending March 2004, Chairman Richard Lapthorne said last month. The company had 1.62 billion pounds in cash at the end of September and Lapthorne said the company wasn’t “in a hurry” to part with it.
“think they will go for a meager dividend and concentrate on getting the company back on its feet,” said Andrew Darley, an analyst at ING Financial Markets with a ``hold’’ recommendation on the stock.
In the six months ended in September, Cable & Wireless’ UK business, its largest, posted an operating loss of nine million pounds ($16 million) compared with a loss of 211 million pounds a year earlier and the 131-year-old company said demand was “flat”.
A quarter of the British workforce is being cut within two years and some workers have been moved from the London headquarters, the company said. Revenue at the unit fell four per cent to 825 million pounds, extending a two-year decline. “All we can now do is look at the fairly tragic fundamentals,’’ said ING’s Darley.
Duplication of costs in areas such as software and network routing may allow the company to boost its UK margin even without revenue growth, Darley said.
“There are so many easy ways to cut costs that Cable & Wireless should only really have problems improving after two to three years,” he said.
Fixed costs from the US unit are being transferred to the rest of the group and customers may take business to competitors because Cable & Wireless has withdrawn from the US, the company said last month. The two factors may lower fiscal fourth-quarter operating profit by as much as 15 million pounds, the company said.
