Markets & Finance

BT Group Higher on Strong Results


From Standard & Poor's European MarketScope

Britain

BT Group was up £0.09 to £2.10 Thursday after the telecom reported better than expected results. The group's fourth-quarter earnings were up 2% to £4.9 billion, compared to £4.8 billion year on year, and pre-tax profit was up 21% to £557 million. Earnings per share before goodwill amortisation and exceptional items rose 26% to 4.9 pence. The company also said that fiscal year turnover came in at £18.6 billion with pre-tax profit of £2.3 billion. The bank Societe Generale had expected fourth-quarter revenues at £4.7 billion, and earnings per share at 4.6 pence. Credit Suisse First Boston had forecast fiscal year revenues at £18.4 billion. Following the results, the broker Seymour Pierce upgraded the company to outperform from hold.

Drink and candy maker Cadbury Schweppes was down £0.08 to £5.38, ahead of Thursday's annual general meeting. Before the meeting Thursday, the company said it has made a good start to the year with continued sale momentum in beverage and confectionery businesses. It expects first-half margins to be relatively unchanged, despite increased investment in growth, and it sees fiscal-year results in line with forecasts. The company also said that U.S. non-carbonated drinks volumes are improving, after significant investment and the "Fuel for Growth" program savings are on track to be £100 million in 2005. The company also published an International Financial Reporting Standards update and said 2004 underlying operating profit came in 4% lower under the international standards compared to British Generally Accepted Accounting Principles, and underlying earnings come in 6% lower.

Mobile phone operator O2 was up 0.04 to £1.21, after Goldman Sachs upgraded the company to outperform from in-line following yesterday's results. The bank said that the company has underperformed the European sector by 7% and Vodafone by 10% on a total shareholder return basis over the last three months. The broker sees the current price as a good entry level, given strong operational performance, relatively attractive valuation, increasing shareholder distributions and prospects as a possible consolidation play longer term. Separately, the company is considering opening up its network to another two virtual operators in the next 12 months, Peter Erskine, the chief executive, said, according to a report in the Financial Times. The rising number of virtual operators, such as Tesco Mobile and Virgin Mobile, which have no network of their own but re-sell minutes on others' networks, has led to intense price competition in the United Kingdom.

Ports, container and ferries outfit P&O was up £0.17 to £3.12, on speculation that a stake is being built up in the company. The Daily Telegraph reported talk that the Singapore state investment agency Temasek Holdings was trying to buy stock in the company, and some dealers said it may already have acquired 2% of the company. P&O is no stranger to takeover chatter, and dealers gossiped Temasek has the muscle to make a bid for the whole group if it wishes, as it sits on a portfolio valued at $90 billion and controls the Port of Singapore Authority. Last year the investment agency took a controlling stake in Singapore-based Neptune Orient Lines. The rumor comes only a week after P&O Nedlloyd, the container shipping group in which P&O controls a 25% stake, received a takeover offer.

Spain

Hotel group NH Hoteles was up €0.21 to €10.46, after a brokerage upgraded the company to outperform from underperform and raised its target to €12 from €10. Spanish business newspaper La Gaceta de los Negocios reported that the company has launched a non-binding offer to acquire the Occidental Hoteles chain. The bank Caja Madrid highlighted that it is not clear is the offer is just for investment fund Mercapital's stake or for the whole of the group. The bank said that the valuation of €1 billion for the whole group (including €300 million in debt) results in high ratios, and adds that from a strategic point of view the company entering Occidental is very positive. It rated the company hold with €10.26 fair value. The bank Kepler thinks a merger with Occidental is a good strategic move for the company, though its opinion depends on the price and the conditions of the deal. It rates the company a buy.

France

Hotel group Accor was up €0.80 to €36.77 after the Spanish newspaper La Gaceta de los Negocios reported that Spanish hotel group NH Hoteles has launched a non-binding offer to acquire the Occidental Hoteles chain. Press reports suggested that Accor and Marriott have also presented offers as well as a group of financial investors. The estimated offer could have been for around €1billion, including debt.

Oil engineering and services firm Technip was up €0.67 to €33.67 after the company reported first-quarter net profit up 9% to €21.7 million, according to International Financial Reporting Standards. Earnings before interest and taxes were up 16.4% to €50.4 million, although revenues are down 3.8% at €1.2 billion. CEO Daniel Valot said the first-quarter is in line with expectations, although sales were marginally lower due to the declining dollar. The group is maintaining targets released in early February. It said that order intake for the first quarter was €1.9 billion, more than twice as high as in the first quarter of 2004. Meanwhile, the bank Fortis adjusted its share target price to €35 from €138 after a 4:1 split, and kept its hold rating.

The brokerage BNP-Paribas was down €0.55 to €54.95 after the company hired Florence Sztuder to replace Tom Kennedy as head of its equity syndicate. Sztuder has worked at the bank Societe Generale since 1992. Separately, investment firm ETC Pollak Prebon raised target to €70 from €61 and upgraded the stock to buy from add. The broker highlighted the €600 million buy-back plan to acquire 1.3% of shares, and said that the company would be able to absorb risk costs increase of up to 50% year on year until 2007 while keeping a return on equity of around 15%.

Germany

Household products group Henkel was up €0.92 to €74.58, after Deutsche Bank added it to its European Focus List with a buy rating and target of €85.

Retail group Metro AG was down €0.44 to €40.42, after it increased it stake in its Chinese joint venture to 90% from 60% as the country relaxes its ownership limitations.

Switzerland

Insurer Zurich Financial was down 5.80 Swiss francs to 205 francs, after the company posted a first-quarter net profit in line with expectations at $779 million, up 21% year on year, on strong results from non-life insurance operations and rising investment income. However, underlying figures disappointed slightly, with the insurance group posting a quarterly operating profit of $1 billion, estimates of $1.6 billion. The company still faces a tough environment, with premium rates declining in some general insurance markets, low investment returns, claims inflation and heightened regulatory scrutiny. The bank Dresdner Kleinwort Wasserstein pointed out that the results are no better than consensus and are unlikely to catalyse sustained outperformance. The broker said that it would take profits on recent strength but kept its long-term hold rating.


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