7:08 AM ET Jan 12, 2006
LONDON (MarketWatch) -- European telecom shares were slammed Thursday
after France Telecom warned that sales growth would be worse than expected
this year, though broader markets were steady after gains outside the hard-hit
sector.
Germany's DAX 30 eased 0.1% at 5,526, the French CAC 40 index lost 0.2% at
4,880, while the U.K.'s FTSE 100 index climbed 0.1% at 5,736.
The pan-European Dow Jones Stoxx 600 added 0.2% at 317.70 as gains from
other sectors such as oil companies BP and Royal Dutch Shell put a floor to
losses.
Oil stocks were tracking higher as front-dated crude breached $64 a barrel
once more, recently up 66 cents at $64.60 a barrel.
In the currency markets, the euro recently traded 0.04% higher against the
dollar at $1.2142 ahead of interest rate decisions from the European Central
Bank and the Bank of England later in the day. Both banks are expected to keep
interest rates on hold.
U.S. stocks also offered some support as strength in the technology sector
helped the Nasdaq Composite clinch its seventh straight session of gains,
while the Dow Jones Industrial Average overcame early weakness sparked by a
profit warning from DuPont.
Telecoms sink
France Telecom slid more than 8% in Paris after saying it expects to
report comparable-revenue growth of 2% in 2006, compared with a previous
forecast of between 3% and 5%.
The company said second-half 2005 trends, which are less favorable than it
expected when it announced a restructuring in the middle of last year, are now
expected to continue into 2006.
Morgan Stanley cut its rating to equal-weight from overweight, noting
concerns about ongoing capex risks. Goldman Sachs also downgraded France
Telecom to in-line from outperform.
Peers Deutsche Telekom, KPN, BT Group and Vodafone all declined.
Deutsche Telekom lost 2.5%, KPN eased 1.7%, BT lost 1.9%, while Vodafone
shed 1.5%. Deutsche Telekom said it was maintaining its earnings targets for
2005 and 2006.
"It is becoming clear to us that 2006 is unlikely to be a vintage year for
the European large-cap (telecom) incumbents. Deutsche Telekom, Vodafone, and
now France Telecom, have all had to admit that maintaining any semblance of
growth is going to come at the cost of margins," said Chris Alliot at Nomura
Securities.
Sales in focus
Amid a raft of other corporate updates, food retailers stood out, with
Netherlands-headquartered Ahold up 2.6%, France's Carrefour down 2.8% and
Britain's J Sainsbury down 0.5% after detailing sales.
UBS pressured Carrefour after it cut its rating on the French supermarket
group to reduce from neutral, noting that the company's fourth-quarter organic
growth of 3.2% was below its forecast of 4.5%.
"Sales were poor and weaker than expected," said J. P. Morgan analysts.
They said Carrefour has effectively reduced guidance by saying the
contribution from French activity will fall in line with the first half's 15%
decline.
"Following the recent share rally and these weak numbers, we expect the
share price to fall," the bank said.
Away from supermarkets, French engineering company Alstom steadied after
it said nine-month orders rose 6% to 12.9 billion euros. It raised full-year
order guidance to a 5% comparable increase from a previous expectation of flat
orders.
Shire, TDC gain
Shire Pharmaceuticals surged 6.2% in London amid hopes it's close to
settling ongoing patent litigation for its attention deficit hyperactivity
disorder treatment, Adderall XR.
"It is certainly not unreasonable to assume that there is an increasing
likelihood that Shire and one or more of its generic challengers, most notably
Barr Laboratories and Impax Laboratories, will settle, given the acceleration
in brand-generic agreements during the past few months," said Deutsche Bank
analysts in a note to clients, after raising its price target to $55 from $43.
Danish telecom TDC shares gained 1.2% in Copenhagen after private-equity
group the Nordic Telephone Company reduced the level of acceptances needed for
its $12 billion bid and extended the deadline for shareholders to accept.
In broker action, Merrill Lynch upgraded Lloyds TSB to buy from neutral.
It expects the bank to surprise the market with better-than-expected results
in 2006. Lloyds shares gained 1.9%.
U.K. utility International Power added 0.5% after a UBS upgrade to neutral
from reduce.
After noting that shares have risen about 125% since the start of 2004,
the bank said that, while earnings drivers for the next year are unlikely to
be as strong as in 2004 and 2005, the downside risks are not tangible enough
to be confident of an impact on earnings.
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SOURCE Thomson Financial Corporate Group
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