Cable & Wireless Worldwide (CW.)

Cable & Wireless Worldwide demerged from Cable & Wireless Communications in March 2010. Management changes and several profit warnings have caused the share price to slump in the intervening period. The first profit warning in July 2010 was blamed on the government's austerity budget. The second in early 2011 was attributed to accelerating declines in traditional voice services, a one-off rebate in 2011, inflationary pressures and pricing pressure on data contract renewals. The third profit warning in June 2011 resulted in Jim Marsh, the then chief executive, leaving to be replaced by John Pluthero, previously the company chairman.

In November 2011 the first-half results were accompanied by yet another change at the top. Pluthero made way for Gavin Darby. He pledged to put an end to the 'fat cat' behaviour of the previous management who took £88m out of the company in five years, through a 'private equity style' incentive scheme and large pay packets. Darby has decided to forego the offer of a chauffeur-driven car as part of his renumeration.

Following the results various analysts released their views. Investec reiterated its buy, albeit with a lowered price target of 53p, and said if a bid does emerge then Vodafone would be one of the most likely bidders. Liberum Capital switched its stance from sell to buy for the first time since the demerger, although the share price was a much lower 14p at the time. Liberum pointed out that the new chief executive, Gavin Darby would be inheriting, "a company with sentiment and valuation at an all-time lowthere are however, some levers he can pull, not least reviewing the list of bid approaches we suspect may be piled up on his desk."

The shares have been volatile, mainly one way. Since the demerger the shares have fallen around 75 per cent. The price touched 14.2p at its lowest level, but the combination of bid rumours, director buying and analyst buy notes has helped the stock off its recent bottom. On Tuesday 24th January the price closed 33.5 per cent higher to 23.9p caused by the clearance of a stock overhang, according to the Financial Times. Revived bid talk has also been cited with various names being mentioned. AT&T and Verizon in the US, Vodafone, Everything Everywhere (previously T-Mobile UK and Orange UK), COLT, Virgin Media and TalkTalk in the UK have all been mentioned as possible buyers. There are, however some bid sceptics. Merrill Lynch see some industrial logic to a US operator buying CW. but point out there is no track record for them crossing the Atlantic to purchase European assets. It also thinks a UK operator might be put off by the operational trends.

Darby, who has a reputation for cost-cutting, has a big job on his hands. This is an unloved company that has been badly managed for years, with shares that are languishing near their low point. He has distanced himself from the excesses of the past, and his experience at Vodafone should stand him in good stead. Investec calculates that the sum-of-parts is around £2.5bn compared to the current market capitalisation of £580m. These include tax assets, the UK network, servers and sub-sea cables. A sale of any of these could release more value to shareholders. Darby is set to reveal his plans in the interim management statement on 16th February. He will be hoping that his strategy will add more value to the two million shares he purchased on 7th December at 16.89p. Therefore, whilst our view does not constitute a personal recommendation and any advice given to individual clients would vary according to their personal circumstances and objectives we rate Cable & Wireless Worldwide a speculative buy.

Robert Kilner, Stockbroker

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