With McCaw Cellular valued at UKP2,200m, what price Racal Vodafone? asked a headline in Computergram on August 3 last year. The item in CI No 737 pointed out that McCaw Communications Cos was floating off 10% of its embryonic but franchise-rich McCaw Cellular Communications Inc at a price that valued the entire company at $2,200m – 120 times its total turnover for the previous year – on which losses had amounted to two times turnover. The valuation was made on the basis of the number of people in the areas served by its cellular franchises, and we pointed out that if Racal Vodafone were to be valued on the same basis, it would be worth a cool UKP2,400m – about the same as the entire group’s market capitisation at that time. And against the argument that US cellular markets are in general less competitive than is the UK duopoly, was set the fact that all the US companies being accorded such astronomic ratings are still in the development stage with substantial investment still to be made, where Vodafone has completed its first stage investment and is already coming into profit – it is expected to report profits of UKP45m for the year to last month, rising to UKP80m in the year just started. Racal’s announcement yesterday that it planned to float Racal Telecommunications – with Vodaforne – as a separate company on the London International Stock Exchange seems to have come as a complete surprise to most observers – but it shouldn’t have surprised Computergram subscribers too much – on Monday, we suggested that the sudden activity in the Racal share price had less to do with wild takeover rumours than with the fact that Americans were beginning to wake up to the fact that by their lights, Vodafone was ludicrously undervalued (CI No 915). The decision to float the business transforms the Racal Electronics group, which will suddenly seen to be cash-rich and in a strong position to make acquisitions. City gossip has the report done by Goldman Sachs & Co for Racal putting a valuation as high as UKP3,300m on the business it plans to float – more than double the market capitalisation of the entire group ahead of the announcement, but cooler heads say the flotation is likely to value the new company at around UKP1,300m to UKP1,400m. Back in August we suggested that American investors bitten by the cellular bug should look at Racal and wound up and if they get trampled in the rush, they could always do a few sums on Sucuricor Group Plc in light of its 40% of Cellnet – too late now: Securicor shares rose UKP1 yesterday.
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