‘We accept without question that Typhoo is a tea, Anchor a butter, Apple a computer and, ultimately, Orange a mobile phone.’
So say the analysts at ABN-Amro’s UK investment research unit at brokers, Hoare Govett. The maxim is being put to the test this month as Orange, one of Britain’s four mobile phone network operators, makes its market debut in London and on Nasdaq in ADR form.
Orange’s two owners, Hutchison Whampoa, the Hong Kong conglomerate which holds 68 per cent of the company, and British Aerospace plc, plan to offer at least 25 per cent of the new company for sale. Bankers are valuing Orange at 2.7bn, and say the deal is a rare chance for investors to bite into the fast-growing mobile phone sector.
‘Cellular is the high-growth end of telecoms and investors are keen. It’s hot property,’ comments one analyst. ‘Orange is a classic start-up: the current business situation gives little clue to long-term growth. Conventional ratios don’t help much, and bankers have to fall back on discounted cashflow or per POP (population covered by the network) valuations.’
Hoare Govett says Orange’s valuation takes little crystal-balling. ‘Cellular forecasting models are well established,’ the firm says. ‘There are many comparisons around the world.’
As for US investors, they have a close relationship with the UK cellular market, with some 40 per cent of Vodafone already in US hands.
Compared to US PCS companies, who last year forked out over $8 bn in licence fees that will linger for years in the form of debt, Orange is sitting pretty. Hoare Govett says Orange is on target to break even on a month-to-month basis by the end of 1996, moving to a cash positive position before 1999.
Moreover, Orange has fewer competitors – there are only four players in the UK mobile phone market compared with six in the US; and the players have national, instead of regional networks.
All proceeds from Orange’s flotation are to go towards paying back remaining loans to its owners. Some 400 mn was paid back after Orange completed a 1.2 bn credit facility last December. The IPO is being lead managed by Goldman Sachs and Dresdner Kleinwort Benson.
