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Trouble in paradise for CWC

TIP UPDATE: Cable & Wireless Communications sees its shares plunge as it reveals a muted outlook
May 25, 2011

Shares in Cable & Wireless Communications (CWC) fell to a 12-month low as the international mobile and fixed-line operator revealed continuing weaknesses in its Caribbean business, and pointed to limited signs of growth in its other businesses.

IC TIP: Sell at 43.5p

Difficult economic conditions coupled with structural declines have resulted in sales from the Caribbean falling by 3 per cent to $850m (£525m), eclipsing stronger performances in Macau, Monaco and Islands and Panama. Revenues from Macau surged 19 per cent to $377m, in line with the nation's strong economic growth. Similarly, Monaco and Islands saw sales rise by 10 per cent to $605m, but competitive pressure meant flat revenues of $623m in Panama.

Conditions in the Caribbean are not expected to improve any time soon, although the $210m acquisition of a 51 per cent stake in Bahamas Telecommunications Company (BTC) - the country's incumbent mobile operator - should offset falling cash profits in the region, which are expected to dip from $229m in 2010-11 to between $180m and $210m this year.

Meanwhile, increased competition in Macau will hold back profit growth there, while government currency intervention in the Maldives will offset otherwise good macroeconomic conditions in the country, driven by higher levels of tourism.

Broker Investec expects flat pre-tax profits of $460.5m and EPS of 7.5¢ in the year to March 2012 (from 7.6¢ last year).

CABLE & WIRELESS COMMUNICATIONS (CWC)

ORD PRICE:44pMARKET VALUE:£1.13bn
TOUCH:43-44p12-MONTH HIGH:66pLOW:42p
DIVIDEND YIELD:11.4%PE RATIO:9
NET ASSET VALUE:14p*NET DEBT:123%

Year to 31 MarTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20092.453946.4na
20102.353834.93.34
20112.444627.68.00
% change+4+21+55+140

Ex-div: 1 Jun

Payment: 12 Aug

*Includes intangible assets of $433m, or 16.7¢ a share

**£1=$1.62

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