Colt Telecom has slumped nearly 12% after a profit warning and a change of strategy.
The company, which runs fibre optic networks and data centres for clients including Fidelity and McAfee, said in a first quarter update that it would withdraw from around 85% of its carrier voice contracts over the next few months, which could knock €175m off its revenues.
It added that 2014 revenues would be 5% to 10% below analysts' forecasts of €325m. On top of that it would take a restructuring charge of €30m in the second half of the year. as it implements cuts to its workforce. The news has sent its shares 17.3p lower to 127.4p.
Analyst Andrew Darley at finnCap issued a sell note, saying:
Colt has announced a trading update dominated by the news that the culmination of the strategic review has led to the decision to undertake a planned reduction of 85% of the carrier voice business, in order to liberate capacity for more profitable enterprise business, leading to an estimated reduction in revenue of €175m (11% of former 2014 consensus, with roughly half of the reduction evident in 2014).
The change in business plan will accompany staff reductions, costing €30m, with savings effective in 2015.
[We reiterate our] sell recommendation...with the uncertainty of growth in the former business model being offered redemption by the strategic review, but still no need for investors to accept the risk with no certainty of improvement. Most upside remains from the unpredictable timing of the potential to be acquired while in a period of weakness and change, with Fidelity's 65% stake remaining the deciding factor. 100p target reiterated until our review of forecasts is completed.
Nomura said, in a note with a neutral rating:
We note that Colt claimed to have pioneered a state-of-the-art carrier voice trading platform, which would constitute a winning proposition in this segment and that the effective winding down of the platform amounts to another strategic misstep from the company (following the misstep in moving away from a co-location hosting model two years ago).
As a result, we expect several shareholders to be losing patience with Colt, and we expect continued weakness in the shares in the coming weeks. Colt is expected to provide a much-needed strategy update to investors and shareholders with the first half results or shortly after. Our forecasts are under review following today's profit warning.
