Cellnet holds Securicor back: The Investment Column

Securicor shares have been poor performers since the security to mobile telephones group moved belatedly last year to sort out its excessively complicated share structure. Part of the reason for that was reflected in yesterday's results.

Interim profits to March were slashed from pounds 47.6m to pounds 19.1m by a string of exceptional charges, some of which were heralded at the time of a March profit warning, but some of which are new. All, however, tend to reflect the group's inability to control its own destiny.

As previously announced, Securicor is taking an pounds 18m hit for the accelerated amortisation of the cost of incentives - mainly subsidised handsets at pounds 150 a throw - which Securicor Cellular Services (SCS), the service provider, is forced to give new mobile telephone subscribers to persuade them to sign up to the Cellnet network.

Along with the pounds 3.9m trading loss at SCS, this reflects the increasingly poor quality of subscribers in the business and the costs of the switch from the analogue to the digital service.

The less well-flagged problem stemmed from Securicor's 40 per cent stake in Cellnet itself, which has announced a pounds 25m provision for cost overruns and delays on its Force billing and customer service system, originally budgeted at pounds 70m.

While Cellnet's performance is improving - the group's digital network has now overtaken that of more recent entrants Orange and One-2-One - the provision just highlights how little control Securicor has over the management of an underperforming business which dominates its results. Before the charge, Cellnet contributed pounds 43m to operating profits in these figures, a 22 per cent rise.

As long as the Government continues to block the sale of the stake to partners British Telecom - and Labour has yet to show its hand on this - Securicor will not be able to resolve this problem, or that of SCS, which would form a natural fit with Cellnet. Until this is sorted out, the growing potential of the other businesses will not emerge.

So with full-year profit forecasts cut to around pounds 103m before exceptionals, the forward price-earnings ratio of 25 looks high enough. Unattractive.