Alcaltel's Nice Surprise

Alcatel's Nice Suprise - at www.moneyweek.com - the best of the international financial media

Mobile phone group Alcatel is known for surprising its investors, says Robert Cyran on Breakingviews.com. But for once, the surprise is actually a rather pleasant one, which certainly makes a change.

So how has Alcatel thrilled its investors? After suffering from poor sales growth in the past few quarters, while competitors surged ahead, this time it has doubled its second quarter sales growth from what the management had predicted. "This is good stuff indeed," says Cyran, and follows much fat-cutting from the group in order to survive the telecoms meltdown. It also means that Alcatel sales were 3.1bn euro, 8% up from the same quarter last year. It's no wonder then that the French provider's share price has surged some 20% over the past two months.

Moreover, it trades at a 15% discount to rival Ericsson based on estimated 2006 earnings, which should convince investors that the group is about to close the gap.

Yet the phone outfit is not in the clear just yet. Alcatel's margins have proved "notoriously volatile" in the past, and revenues have also been inconsistent, says Lex in the FT. And its ability to produce good and sustainable cash returns has not been tested as yet.

What does this mean for investors? The best that can be said for the provider's shares is that the group could offer excellent rewards to shareholders. Yet, warns Lex, that will only happen if "miracles materialise".

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