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Tuesday, 11 September, 2001, 13:54 GMT 14:54 UK
Old economy rebounds into FTSE
It's out with the new, and in with the old.

The financial humbling of the once-mighty stars of the tech world takes concrete form on Tuesday, as the FTSE 100 blue-chip share index undergoes its most thorough shake-up in years.

Roaring back into the index come a host of firms from what used to be called the "old economy" - property companies, insurers, tobacco manufacturers and other unfashionable types.

BBC News Online profiles two of the firms involved in the reshuffle, one winner and one loser.

"Trade in your modem for a Ferrari" urges the website of Telewest, Britain's second-biggest cable firm and one of Tuesday's FTSE dropouts.

Laying cables
When you're in a hole, stop digging
An apt image: Telewest, like many of its peers, has leveraged its expensive cable network to provide a range of high-speed data services, including broadband internet access.

But the firm has performed more like a tractor than a sports car.


No industry has been so aggressively hyped, and then so mercilessly savaged, as the cable business.

When the tech boom was at its height, cable was seen as the next step for internet connectivity, allowing not only high-speed access, but a range of other premium services, most notably digital television.

Cable, it was thought, was the magic solution that would allow the eventual conversion of broadcasting and the internet.

A host of firms in the telecoms and media sectors raced to pour money into expanding cable networks.

Digging holes in roads all over the world was a wildly expensive business, but the payoffs should be lavish in the extreme.

... and troughs

Or so it was thought.

In fact, developing cable networks has simply proved too expensive.

The levels of debt taken on by Telewest and its rivals - the closest of which is NTL, Britain's biggest cable firm - may have looked sustainable early last year, but now loom terrifyingly.

Telewest chief executive Adam Singer
Telewest boss Adam Singer has seen his firm's shares collapse
Telewest owes 4.8bn - NTL more than twice as much.

Investor panic over cable firms' ability to service their mountainous debt has seen their shares take a hammering way in excess of the tech-market average.

Telewest's shares, worth 563p in March last year, are now trading at just 44p.

The only reason they have not fallen further, say brokers, is because some speculators are holding out for a merger between Telewest and NTL - something seen as inevitable if bankruptcy is to be avoided.

Basically sound

That said, Telewest is no vacuous internet start-up.

Britain has taken to digital TV with enthusiasm: more than 40% of homes are now subscribing, and Telewest's latest financial results - although showing continuing losses - contained a 24% jump in revenues.

And since firms like Telewest can sell their subscribers a wide range of services, from telephone calls to internet access to cable TV programming, they earn far higher revenues per customer than basic broadcasters such as Rupert Murdoch's BSkyB.

This month, Telewest announced that it had launched the world's first live action interactive betting service.

Investors, however, just are not willing to sit around waiting for it to pay off.

What could be less exciting than bathroom fittings?

Rather a lot, as far as investors are concerned, it seems.

You could be forgiven for never having heard of Wolseley, one of the old economy firms bouncing back into the FTSE 100 index.

You have probably never heard of any of its brands either.

But you will almost certainly use them every day.

Plumbing profits

Wolseley is the number one supplier of plumbing materials in the US and Europe, with sales of more than 6.4bn last year - five times as much as Telewest's.

Wolseley lists on the NYSE
Wolseley has tapped the New York markets
The Droitwich-based firm has just recorded five straight years of growth in profits, sales, earnings per share and outlets.

And in the process, its shares have risen by almost 90% in the last 12 months - an extraordinary performance for a manufacturing company in a sluggish market.

In May, Wolseley achieved the glamour accolade of listing its shares on the New York Stock Exchange.

Going west

The New York listing is part of the creeping Americanisation at Wolseley.

The key to the firm's continuing growth has been its aggressive policy of acquisitions, most recently the 250m purchase of Canada's Westburne Plumbing.

Just before its US listing, Wolseley brought in Charles Banks, an America, as its new chief executive.

Mr Banks, who was previously in charge of Ferguson, the firm's US subsidiary, is charged with broadening out Wolseley's acquisition activities.

So far, it has had no problem in finding takeover targets in the US, but pickings in the UK and Europe have been much poorer, leading to fears that the group could become too US-heavy.

In and out

So is Wolseley in the top flight for good?

A bathroom
There's money in bathrooms
Not necessarily: it has been in and out of the FTSE 100 in the past, and tucks in dangerously near the bottom in this reshuffle.

Like all old-economy firms, Wolseley has seen its share price benefit from the investor flight away from the tech sector.

But if the global economy - and especially the US economy - really is slowing down, that will harm all manufacturers of domestic products, which are highly vulnerable to swings in consumer spending and property prices.

Persisting with acquisitions can keep Wolseley growing and pleasing the markets, but not indefinitely.

See also:

11 Sep 01 | Business
Shares rally after worldwide slide
11 Sep 01 | Business
Hi-techs face FTSE relegation
10 Sep 01 | Business
FTSE hits three-year lows
07 Sep 01 | Business
Stock markets plunge on US data
07 Sep 01 | Business
BA risks FTSE rejection
24 Aug 01 | Business
Matalan poised for FTSE promotion
14 Aug 01 | Business
Marconi could fall from FTSE index
22 Mar 01 | Business
Telewest losses widen
16 Nov 00 | Business
Telewest 'back on track'
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