COLTY: Good Company, Lousy Stock [SELL]
-Despite continuous improving operating results, COLTY is way ahead of itself as far as its share price. Under no measure the current price can be justified, especially if the company is only expected to generate positive cash flow at the end of the year 2000 and real profits only in the year 2004 at best. The price of the stock has no
resemblance to the company's competitive stance nor to its peers. Let's see why
- By the year 2000 the former European monopolies [PTTs] will still have a very strong non-mobile phone market share, equal to 88% on average according to CSFB. With the market in the big 5 countries (UK
Germany, France, Spain and Italy) expected to be $96 billion and COLTY's revenues forecasted to be, at best, $1 billion, COLTY's expected market share cannot be higher than 1%. Now, the combined market capitalization of the big 5 PTTs (excluding their mobile and
international business) is $200 billion suggesting a value for the entire market of $237 billion. However, COLTY's market capitalization as of yesterday is $6.4 billion which implies a market share of 2.7%. In other words, COLTY's market value is 2.7 times its expected market share in the year 2000. How can this be explained?
- As mentioned, COLTY is not expected to generate profits until the year 2000 at best. Do you know the current P/E based on Morgan Stanley's expected 2002 earnings: 80 times!
- How does COLTY compare to its peers? Take a look at this:
a) On January of this year, 1 share of WCOM was equal to 2.9 of COLTY;
yesterday 1 share of WCOM could only buy 1.1 of COLTY. WCOM is up 78%
this year, COLTY is up 334%. By the way, WCOM generates real profits and trades "only" at 27 times 1999 earnings.
b) The average 1999 price/revenue for 19 CLECS according to Sal Bros is 3.3 times against 11 times for COLTY. COLTY is more than 3 times more expensive than the average CLEC in the US.
-The speculative frenzy on COLTY can only be explained by narrowly focusing on the next coming quarter results (with the operating updates from management followed by the usual upbeat reports of the
same brokers that were involved in the IPO and subsequent share/bond
issues) and overlooking the competitive challenges in Europe. The US
regulatory environment is very open and friendly. It is a serious mistake to expect the same here in Europe. Don't bet your money on it. |
