Hi,
A perverse example of stockbrokers recommendations. Both are expert, both are well regarded and yet they take opposing positions, giving good reasons. Either go with your own research or in situations like this, leave well alone. It will be interesting to see which way it goes
Regards
Joe
27Nov2000 14:40
OUTLOOK: Marconi H1 pretax 254-330 mln stg; brokers split on market growth
LONDON (AFX) - Marconi PLC is expected to return pretax profits of 254-330
mln stg when it reports first half figures on Wednesday, brokers estimate, but
views are sharpy divided on whether the numbers will demonstrate a reformed
powerhouse or a cost-heavy vendor with a "precarious" market position.
The question, they agree, is whether the feared slump in infrastructure
spending by debt-laden telcos is about to become a reality and, if so, whether
Marconi is equipped to deal with it.
The figures are the telecoms vendor's first since its former incarnation,
GEC, was reorganised via a top-to-bottom restructuring into a pure-play telecoms
group, and brokers said that has made the question of seasonal trends difficult
to judge.
That perhaps has contributed to the polarisation of views.
On one hand, Deutsche Bank which sees Marconi as a 'market performer'
says the results will "provide the market with further evidence that despite
valuations the fundamentals remain robust".
Deutsche's analysts say the 30 pct valuation slide in the last three months
is unjustified on performance. They estimate a pretax profit of 254 mln stg on
sales of 3.01 bln stg for the half year, with a dividend of about 2.25 pence.
But Williams de Broe is adamantly negative.
On the likely size of the market, Williams de Broe's analysts "continue to
believe that the telecoms equipment market will struggle to grow next year, as
service providers are squeezed by falling profits and higher borrowing costs".
The optical boom beloved of some commentators, they say, "has turned into a
bandwidth glut, and we are already seeing signs of distressed selling. There are
simply not enough high bandwidth applications."
Describing a trading statement in October as "essentially a profit warning
with the usual promise of more jam tomorrow", it warns investors to "brace
themselves for more 'exceptional operating costs charged below the operating
margin line as management strives to beat the market consensus".
The broker recommends a 'sell', although its pretax estimate is higher at
299 mln stg.
In contrast, Deutsche analysts Bruce MacDonald and Michael Hall say the
trading statement simply laid out the likelihood of an in-line performance, with
orders up 22 pct in the first half to 3.3 bln stg, new orders totalling 2.7 bln
stg and total communication sales up 40 pct.
Deutsche noted the recent concern among some observers about a downturn in
spending on telecoms equipment by operators.
But MacDonald and Hall said it identified a divide between traditional
SDH/SONET optical sales doomed to a slow decline, with Marconi's sales in the
sector down 17 pct in the last quarter according to market research firm Dell'
Oro and pure optical equipment, which is set for rapid growth.
"In our opinion, the market has been spooked by a change in the mix of sales
and has lost sight of the fundamentals that will drive demand," the analysts
said.
But Williams de Broe's Sanjay Jha, David Traherne and James Shenton take the
opposite line.
"Marconi is still heavily reliant on old SDH multiplexing technology," they
say. "It needs to spend more on R&D to catch up with technology, and on
marketing to gain orders for its undifferentiated products." Its ATM switching
position is "precarious" against newer switching technologies.
jsj/kl
Source: Updata Newstoree
[This message has been edited by Joe (edited 27-11-2000).]
