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Technology Stocks : Alcatel (ALA) and France -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (1051)	12/9/1999 9:18:00 AM
From: Paul Lee	Read Replies (2) \| Respond to of 3891

going higher ANALYSIS-Alcatel regaining investor favour By Gillian Handyside PARIS, Dec 9 (Reuters) - French telecoms engineering firm Alcatel, whose shares plummeted after a profit warning in September 1998, is gradually regaining investor confidence, analysts said on Thursday. Earlier this week the stock surpassed its July 1998 year high of 215 euros, setting a new high at 220 euros on Wednesday, and analysts expect further price gains as Alcatel benefits from the twin growth engines of mobile telephony and the Internet. Alcatel is the world leader in ADSL (Asymetric Digital Subscriber Line) which allows high-speed access to the Internet along conventional copper telephone cables. While less glamorous than fiber optics, ADSL offers the prospect of fast data transfer via conventional cable, but some analysts nevertheless continue to question whether Alcatel can make it into the top league alongside rivals such as Lucent, Cisco, Nokia and Nortel. Rising some 230 percent since its 68-euro low of October 1998, the stock has outperformed the French blue chip CAC-40 index and Lucent, though it still lags other rivals. Analysts said Alcatel's share price recovery was due in part to the general euphoria surrounding the telecoms sector. But it also reflected fundamental improvements within the company. ''There are growing signs that Alcatel has addressed some of the issues that caused the chaos,'' London-based Salomon Smith Barney analyst Mark Davies Jones told Reuters. He cited management changes, successful product rollouts such as ADSL in the United States, significant transmission orders, the sale of activities that were dragging on profits, and ''potentially profitable new areas of growth.'' Concerns that Alcatel might not be able to meet its turnover target for 1999, given its traditional concentration of sales in the fourth quarter, were now fading, Davies Jones added. QUALIFIED OPTIMISM Alcatel said this autumn it was on track to achieve double digit growth this year and earn a 6.5 percent operating margin in 2000 -- better than the five percent margin expected in 1999 if still only half the 15 percent sector average. ''Alcatel is restoring credibility by excellent wins with new technology, namely ADSL and optical systems,'' said Angela Dean at Morgan Stanley Dean Witter. ''It is trying to change.'' Reuters Securities 3000 earnings forcasts compiled by Barra show that analysts expect earnings per share to fall by 28.30 percent in 1999 and grow by 41.50 percent in 2000. Uncertainties still remain about Alcatel's ability to deliver products and profits in the long-run, given the fierce competition, but that did not stop several brokerages raising their price targets to between 225 and 250 euros on November 30. ''The sector's enterprise value to operating profit ratio has risen from 25.5 to 28 in the space of two weeks,'' explained Remi Thomas, analyst at Paris brokerage Bourse Chevreux de Virieu. Enterprise value is a company's market capitalisation plus its debt. Thomas said that given that sector multiple, Alcatel's discount should shrink from 20 to 5-10 percent, in view of the fact the company forecast 15 percent annual growth in telecoms sales (in line with the sector) and expected to reduce the gap in operating margin separating it from rivals by 2001-2002. SECOND TIER PLAYER While analysts agree that Alcatel is closing the gap with foreign competitors, they are not sure Alcatel will make it into the top league. For Merrill Lynch, Alcatel remains a second tier player in the two areas with most potential for expanding margins -- mobile phones and data transmission along fixed lines. Developing ADSL is a drag on margins, rollout is slow outside the United States and the technology may be discarded when mobile data transmission takes off, some analysts say. Alcatel's mobile infrastructure activity, though expected to break even this year, remains a small part of the business. ''Alcatel stands out from the crowd and is undervalued relative to the sector. If it can get things to gel there's no reason why it can't meet profitability targets. But it has to get it to gel,'' said one analyst who declined to be named.