Investment: Thoroughbred Colt is not quite ready to run

COLT LOOKS more like a true thoroughbred by the day. The aggressive telecoms operator cantered its way into the FTSE 100 index earlier this year and, despite stumbling when the markets took a dive, looks set to keep its place among the big boys. Yesterday, it once again confounded the sceptics with a solid set of third-quarter earnings figures.

To the uninitiated, the swathes of red ink in Colt's statement are hardly a sign of good breeding. But investors no longer worry about Colt's bottom line.

With an expansion plan that involves building high-tech telecoms networks in 26 European cities, heavy capital spending and high depreciation charges will keep Colt in the red for years to come.

More important than this consideration is Colt's ability to sign up large telecoms users, who are attracted by its competitive rates and customised services. Although the market in most European cities is still in its infancy, Colt is bounding ahead.

By the end of September, its network was 46 per cent larger than just three months earlier. Revenues trebled over the same period of 1997, while they were up 32 per cent on the second quarter of this year.

Even in markets such as London, where the competition is intensifying, Colt is holding its own - average revenues per customer increased by 38 per cent. Adding Internet services and long-distance connections between its cities to its products will help Colt fight off its rivals.

However, none of this justifies Colt's valuation. At yesterday's closing price of 665p, up 20p, the company is valued at more than 10 times next year's forecast revenues of pounds 360m.

This looks rather like the financial equivalent of backing a raw but promising one-year-old to win the Grand National in five years' time. Colt is indeed a class act, but until it grows up a bit the shares are high enough.