Colt shares dive as it warns of profit stagnation

Colt Telecom shares went into freefall this morning after the company warned that it would fail to meet its profit targets this quarter or even this year.

The shares then went straight down from 80.25p and are now bumping along at around 55p, meaning a 31 per cent drop.

The company said that it was struggling to sell its higher-margin products and that, while revenue would rise this quarter, it would be fuelled by an increase in its standard, low-margin products.

Mike Cansfield, analyst at Ovum, commented: "Colt has been a star performer in the sector until now. For several quarters it has bucked the industry trend and reported double-digit growth. We have always believed that Colt would struggle to move away from its core business of providing voice and basic data services to medium-sized enterprises."

Earlier this year, Colt went through a minor reorganisation and brought in industry veteran Jean-Yves Charlier (the man who moved BT Global into the black) to run the show.

He and the executive team were confident that a range of value-added services would be the key to moving up the chain to better margins and profits. The company is still confident that it will manage to be free cash flow positive sometime in 2005.

But take-up of its data products and higher value voice products has been, as the company puts it, "disappointing." The word 'challenging' also crops up.

And Cansfield points out that new boss Charlier must now realise that his task "just got harder".