Tuesday, March 30, 2004

Daiwa Eurotelcoblog No. 14, Monday 3rd November, 2003: Bluetooth hijacking = bluejacking/this week's long-short idea (original email blast 10:00 AM Monday 3rd November, 2003)

Bluetooth hijacking = bluejacking

On the excellent Boing Boing this morning we stumbled across a developing phenomenon, which should further inflame concerns over mobile device security and potentially provide impetus to new opportunities for personalised P2P spamming/stalking. Known as "bluejacking," the practice involves using a bluetooth-enabled device to send an unsolicited and anonymous message to another bluetooth-enabled device within its range, using the "name" entry on the contacts list of the device. A "how to" page and other information can be found at (http://www.bluejackq.com/howto.htm).

Long/short idea for the week - Carphone Warehouse and BT Group

There are a number of levels on which this pairing may seem counterintuitive:

Carphone's share price has outperformed FTSE100 by 6.06% over the past month (and 60.6% year-to-date), while BT lags by 1.97% (and 14.21% year-to-date).

Carphone looks "expensive" on consensus P/E of 16.9x 2004 earnings (relative P/E of 1.29), and yields only 1.04%, while BT looks "cheap" on 9.9x 2004 EPS (relative P/E of 0.76x) and yields 4.85%.

However, we think Carphone Warehouse has momentum on its side, and its results announcements/trading updates tend to serve as a focus for anxiety over BT's market position. Over the past year, BT has underperformed Carphone Warehouse in the week following Carphone Warehouse results/trading statements, on four out of five occasions. On the four occasions when it has underperformed, BT has underperformed by an average of 8.23% over one week.

We expect more tough talk on the CPS strategy from Carphone when it reports tomorrow. The October 8th trading statement contained a 25% increase in the March 2004 subscriber target, to 350,000 - 400,000, implying around 9,000 net additions per week over the next six months. This, in our view, is not a stretch, considering that the group moved from 4,200 per week over the summer to 6,100 per week in August/September, and is at around 8,000 per week currently. The 8th October trading statement pledges more marketing spend on brandbuilding and affinity partner development, and we believe recent product innovations (e.g., "Phone a Friend for Free" and the free handset initiative for customers still renting handsets from BT - addressable market 3m!) point the way to further marketing pressure from

Just for fun, we opened a one-week long/short paired trade (Monopoly money only, Mr. Regulator) in Carphone Warehouse and BT this morning, and will monitor it over the next week, possibly extending it to capture the BT Group results on 13th November, which we expect to be solid but unspectacular.

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