10:02 AM ET Jan 12, 2006
LONDON (MarketWatch) -- European telecoms took a beating Thursday after
France Telecom warned that sales growth would be worse than expected this
year.
However, broader markets on the Continent were steady after gains outside
the hard-hit telecom sector and as the European Central Bank left interest
rates on hold.
Germany's DAX 30 eased 0.1% at 5,527, the French CAC 40 index lost 0.2% at
4,881, while the U.K.'s FTSE 100 index eased 0.03% at 5,729.
The pan-European Dow Jones Stoxx 600 added 0.2% at 318.24 as gains from
other sectors such as oil companies BP and Royal Dutch Shell and resource
stocks cushioned losses.
Oil stocks gained as front-dated crude breached $64 a barrel once more,
recently up 56 cents at $64.50 a barrel.
In the currency markets, the euro recently traded 0.9% lower against the
dollar, at $1.2035, after the European Central Bank left rates on hold at
2.25%, as had been expected.
European Central Bank President Jean-Claude Trichet, in his post-rate
decision press conference, said risks to price stability remain on the upside,
singling out high oil prices and housing market lending. Trichet said the
decision to hold rates at 2.25% was unanimous.
Earlier, the Bank of England kept U.K. rates on hold at 4.5%. Sterling
was recently down 0.3% at $1.7615 vs the dollar.
U.S. stocks opened lower Thursday, with the Dow Jones Industrial Average
eroded by downgrades for Coca-Cola Co. and J.P. Morgan Chase and the broader
market pressured by concerns about the strength of the fourth-quarter earnings
season.
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 Group all declined.
Deutsche Telekom lost 3%, KPN eased 2.2%, BT Group lost 2.5%, while
Vodafone Group shed 2.1%. 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
Food retailers stood out in trading, with Netherlands-headquartered Ahold
up 3.3%, France's Carrefour down 2.7% and Britain's J Sainsbury down 3.3%
after detailing sales.
UBS pressured Carrefour after cutting its rating on the French supermarket
group to reduce from neutral, noting Carrefour'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.
French engineering company Alstom eased 0.7% 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 1.3% 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 1.5%.
U.K. utility International Power added 0.9% after a UBS upgrade to neutral
from reduce.
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SOURCE Thomson Financial Corporate Group
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