There are doubts as to whether the UK telecom sector will ever be able to fulfill its product promis...
There are doubts as to whether the UK telecom sector will ever be able to fulfill its product promises, according to Derek Mitchell, director of pan-European equities at RSA Investments.
He says: 'Telecom companies are looking very unsure in the UK and on a global perspective. Everything that was promised to be up and running by now has been pushed further back and there is doubt as to whether it is going to work at all.'
RSA Investments remains cautious on the sector and is underweight telecoms across all its funds.
The weightings across the various portfolios are around 10%, compared to some 11% in the index.
Mitchell says: 'It is envisaged that RSA Investments will keep its underweight position for some time.'
Leigh Harrison, head of UK equities at SLC Asset Management, is also cautious about the UK telecom sector in the short term. He says: 'We believe it was oversold at the back end of last month, probably over the Vodafone stockplacing fears.'
For the year to the end of June 2001, Vodafone has fallen by 34.7%, compared to a fall of 6.83% in the FTSE All-Share index and a 36.75% drop in the telecoms sub-index.
BT has a lot of funding following its rights issue but Mitchell says RSA is awaiting the outcome of its position on Concert before becoming more positive on the stock.
Concert, owned by AT&T and BT, sells phone services to businesses. The business is to be divided between the two companies with the hope of retaining clients.
It was set up in 1998 and has not met revenue expectations. BT recently raised £5.9bn as part of its move to reduce debt. Its shares fell 13% in the first half of this year and 40% over the past year.
Mitchell says: 'Concert is part of the business that BT is getting rid of but there is debate over whether people will buy or not. We would have to look at what the deal is and then take a view.'
Harrison says: 'BT fell with the rights issue and there are concerns over the fundamental value of the business.
'There is very aggressive competition but there is evidence that the management has improved.'
Mitchell adds that Europe has seen a few bankruptcies recently and there is the chance that some small UK companies will run out of money. He says: 'If this happens then shareholders may not remain so friendly.'
Mitchell believes there is no rush to get back into the telecoms sector, as in the current market it pays to sit back and see how things unfold.
He says. 'If we miss the first 10% on the way up, it doesn't matter so much as things have come back so far. We have time to look at all the factors before getting involved.'
Harrison says: 'Nothing fundamental has changed in the market, which has been soggy for the past few weeks. Any rise in the market will mean that telecom companies will rise too.
'Fundamentals have not changed. The companies continue to look pretty poor and valuations are unattractive.'
Market rises will equal telecom rises.
Telecoms have not yet seen bankruptcies.
BT management is more competent.
£300bn of liabilities
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