Spectrum Network Systems Limited

Q - The share prices of the three small telco stocks you reviewed on June 16 have held up very well during the volatility of recent weeks. Can you explain why this is so when most other smaller companies have been hammered and do your recommendations still stand?

A - The reason for their resilience over the past month is due to the increasing interest in the smaller capitalised telecommunications stocks - people are looking for another Telstra. We still think that many of the smaller listed telco's won't meet expectations and will fall by the wayside but there will be a select few that will do well. Those companies that can 'cherry pick' Telstra's more profitable services are those most likely to succeed. Of the three stocks we reviewed, AAPT (Accumulate - $2.72) and One.Tel (Buy - $2.50) are both now trading at higher prices while Spectrum Services (Hold - $0.77) is down about 12% on our review price. We're still comfortable with the prospects for all three companies and maintain our recommendations. There are other interesting small telco's but we feel the aforementioned companies offer the best growth prospects with a manageable amount of risk.