The wrong kind of growth

1 July 2004

The UK alternative telecoms carrier is missing out on highmargin revenue streams. Competition and investment cutbacks are to blame. Colt can still become cash flow positive. But absent highmargin revenues, the case for the shares is weak.

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Colt, the UK alternative telecoms carrier, warned that its fullyear ebitda would be below or in line with last year's £163m level. The consensus forecast for these underlying earnings had been £204m, according to JCF.

The company forecast its revenues for the second quarter of this year to be higher than in the same period last year. However, it added that it had experienced tougher than expected trading conditions. There had been slower than anticipated uptake of its data products and the performance of some of its higher margin voice products has been disappointing.

Growth would therefore come mainly from the lower margin segments of the business, Colt said. As a result, even though costs continued to be under tight control, overall margins were under pressure. These trends were expected to continue throughout 2004.

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