Markets & Finance

BASF Lower on Broker Downgrade


From Standard & Poor's European MarketScope

Britain

Sugar and sweetener company Tate & Lyle was up £0.10 to £4.64, after Credit Suisse First Boston cut the company to underperform from neutral and kept its target of £3.80. The broker asks: has the impressive rise in the company's share price finally peaked? It points out that despite the continuing news on soft drink companies adopting the company's artificial sweetener Sucralose, the shares have failed to sustain the heights reached in March. The broker added that there may be some nervousness ahead of today's ruling by the World Trade Organization on the case brought against the European Union for dumping sugar on the world market. The broker noted that the original ruling has been upheld, and said, despite Sucralose, it expects the company's profits to decline 15% between 2006 and 2009.

Telecom equipment maker Marconi was down £0.35 £2.63, after two broker downgrades. Following the announcement yesterday that the company failed to win any business on British Telecom's £10 billion 21st Century Network expansion, UBS downgraded the company to reduce from buy and cut its target to £2.30 from £7.26. Deutsche Bank downgrade the company to hold from buy and lowered its target to £3.00 from £6.25.

Sainsbury grocery store chain was up £0.04 to £2.82, after the company announced that is has acquired SL Shaw, a convenience store operator with five stores in South East England. The company said that for the fiscal year ending March 31, 2004, SL Shaw's turnover was £11 million and the value of net assets acquired was £0.4 million. The company said that this acquisition fits with its target of growing sales in the convenience business by £400 million by the end of 2007/08.

France

Havas advertising group was up €0.24 to €4.90, after the company's board voted yesterday against the draft resolutions presented by Bollore Medias Investissements and recommended that shareholders reject the draft. The board argued that Bollore has not replied to its December letter demanding information regarding Bollore's intentions. Yesterday Citigroup reiterated its sell view on the shares. The broker believes that recent speculation over a bid for the group seems unjustified, with uncertainty likely to come to a head at the company's annual general meeting in June. The broker did, however, raise its price target to €4.30 per share from €3.50, reflecting improved trends from theunderlying business.

IT consultancy Cap Gemini was up €0.68 to €24.05, after Morgan Stanley upgraded the stock to overweight from equal weight. The broker introduced a new price target of €27.00 on a more favorable risk/reward outlook.

Steelmaker Arcelor was up €0.17 to €15.60, after chairman Guy Dolle said in an interview with the newspaper La Tribune that the company aims to expand in Turkey, with special interest in steelmaker Erdemir's privatisation process. Other possible expansion opportunities are in China, Ukraine and Russia, according to the interview. Dolle also said that he expects a fall in iron ore prices in 2006, after the boom in 2005 and said that the company expects to list its Brazilian operations on the stock market after unifying them under a holding. He added that the company wants to keep between a 60% and 70% stake in the holding. The company holds its annual general meeting today.

Video games publisher Ubi Soft was up €0.31 to €31.11, after Deutsche Bank raised its target to €28.00 from €25.50 and kept its hold rating. The company disclosed 2004/05 sales of €537 million, up 5.7% from a year earlier. Excluding foreign exchange effects, sales rose 8%. In the fourth-quarter of 2004/05, sales came in at €221 million, up 45% (or 50% at constant exchange rates), better than expected. The company reiterated 2004/05 operating profit of €40 to €45 million under French accounting rules, but expects to generate more free cash than previously estimated. For 2005/06 the company confirmed its projection of a 12% sales rise at constant exchange rates and operating income exceeding €55 million, under French rules.

Germany

Chemicals company BASF was down €1.46 to €49.98, after the Cheuvreux cut its target to €67 from €73, with an outperform rating. The broker said that the company tried to show optimism about future developments in the conference call. However, the broker said that poor volume growth in the first quarter and reduced demand for coatings at its main customers (which are automotive) raise some questions about the cycle. The broker applies a 5% discount to the company's valuation due to the increased risk of a downturn.

Drug and chemicals company Bayer was up €0.51 to €25.93, after Merrill Lynch said the company trades at a premium to its fair value estimate of €23. The broker sees a danger of a cyclical slowdown in the second half. In addition, Bayer's pharmaceuticals strategy remains high risk, with just two significant products in PIII or PII. The broker noted that headline first-quarter of 2005 results were strong, due to cyclical businesses. The underlying earnings before interest and taxes in the first quarter of 2005 was €1.142 billion, compared to a consensus of €850 million. The broker noted that a key driver was the cyclical Material Science segment. Reported earnings before interest and taxes in the first-quarter was €1.004 billion compared to its €648 million estimate and the consensus forecast of €717 million, the broker noted. In addition, net income was €652 million in the first quarter, compared to its €299 million estimate and consensus of €334 million. The broker said the company was helped by better underlying earnings before interest and taxes, lower exceptional charges, and a lower non-operating result. Merrill Lynch has a sell rating.

Volkswagen was up €0.51 to €32.39, after the company reported a loss from its Chinese operations in the first quarter, thanks to competition and a lack of new models that hurt sales. The company said it has an earnings before interest and taxes loss of €17 million, compared to a previous profit of €106 million. The company's market share in China has fallen to below 20% from about 25.2% in the previous quarter. The company said that the VW Brand Group division narrowed its operating loss to €53 million, compared to €71 million from the year ago period, as costs cuts offset sales decline and the impact of the strong euro. Audi Group improved its operating profit by 22% to €303 million, helped by ForMotion on the back of unit sales of Audi. The commercial vehicles division narrowed its operating loss to €39 million from a previous loss of €88 million. In US, the operating loss widened to €328 million compared to the previous period's loss of €235 million, after revenues declined 12.5% thanks to model changes. Volkswagen said that ForMotion's cost-cutting program helped offset sales decline in such a way that the gross profit margin of the whole company slightly improved to 12.7% from 12.6%.

Deutsche Bank was down €1.51 to €63.19 after dealers report that British hedge funds are selling the stock. Separately, the company said first quarter trading revenue gained 18% to €2.41 billion from a year earlier. Total revenue in the first quarter rose 7% to €6.58 billion. Yesterday the company said net income 17% to €1.1 billion. At the company's press conference, CFO Clemens Boersig said it is on track to meet its ambitious 25% pre-tax return on equity goal before restructuring and charges. Boersig said the company's first quarter cost income ration of 71% is on target and the company's core capital ratio declined to 9.2% from 10.1% with risk-weighted assets at €227 billion. Boersig said he expects the company to spend €750 million on a restructuring program this year. With regard to the smaller than expected charge of €168 million, Boersig said it is due to managed attrition in affected areas and the pending outcome of a strategic review of the company's UK arm of asset management.


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