Big gains from little fish?

In an attempt to clear the decks from the old Spectrum days and a pay-out relating to a damages claim with a previous carrier were bought to account with an abnormal items charge of $3.4m. But this hasn't affected the company's strategy to rollout a fibre optic network linking Sydney, Brisbane and Melbourne. Ultimately, the intention is to be a facility-based provider of telecommunications services to the commercial and wholesale markets in Australia. Contracts have now been signed with Nortel and Oracle and the building of the network has begun.

We expect interest in the company to remain high and while it is still early days and the timing of eventual earnings is unclear, we rate the stock a SPECULATIVE ACCUMULATE.

The Take Part Profits recommendation in our One.Tel (ONE - $10.20) review published on February 26, 1999 at $11.20 proved to be timely. This was made amidst all the hype that surrounded the announcement that Publishing & Broadcasting and News Corporation were to inject a whopping $429m in to the company to help fund marketing and capital expenditure requirements. If this was not enough to drive the share price north, the company also reported a healthy interim net profit after tax of $3.6m, on revenue that increased 55% to $150.7m. In the heat of the moment the share price peaked at $13.55 but has been drifting back ever since.

The company has a great track record with huge prospects if the right decisions are made, but even at these lower levels the share price is driven more by hype than anything else. For those that enjoy riding roller coasters when you can't see around the corner, HOLD.

The rest of the pack

Of the other 'bottom feeders' that were covered in our earlier report, Mobile Communications (MBC - $13.90), which owns 4.5% of Vodafone Australia's business, is benefiting from rising investor interest about the anticipated upcoming float of Vodafone. We suggest you ACCUMULATE the stock for this reason alone but the usual 'buyer beware' caveat applies, making the stock unsuitable for conservative investors.

In our 'Ringing a Profit' report we also mentioned Easycall Group (EZY - $0.29) and Telco Australia (TLO - $0.47) with speculative buy recommendations thanks to their higher risk profile. Easycall is still suffering from its exposure to Asia although it did manage to report an interim profit of $4.5m before abnormals and tax. Even so, its share price has still drifted in the wrong direction and at current prices remains a speculative play and until the price looks like firming there's no hurry to buy. HOLD. For Telco Australia, after a dream debut on the bourse, its shares have also drifted back as some of the sizzle evaporates from the share price. With sales of just $0.64m and a profit of $0.23m, it's early days for the company and its nationwide dealer network. HOLD until further notice.