Markets & Finance

Philips Falls on Cautious Outlook


From Standard & Poor's European MarketScope

Netherlands

Royal Philips Electronics was down ??0.58 to ??22.07 after the company reported firm second quarter results with a cautious outlook. The group reported quarterly net income of ??983 million, up 59.5%, with sales of ??7.1 billion, down 3%, and operationg income of ??983 million, up 59.57%. The group remained cautious regarding the business outlook for the immediate future, saying that with growth slowing down in many parts of the world, and in Europe in particular, the weak retail environment will impact growth ambitions in the short term.

Royal Dutch oil group was down ??0.65 to ??52.80 after the Guardian reported that the company is locked in battle with farmers in Broadhaven Bay, in County Mayo, Ireland, after five villagers were jailed "indefinitely" for refusing to allow the company access to their land in order to build a gas pipeline. The report noted that the local residents believe that the proposed ??600 million pipeline is unsafe as the bog it is to be built into is "wobbly as blancmange." Some of the company's workers are reported to have walked off the project in protest of the company's actions against the residents. Note: last week the group almost doubled capital expenditures at its Sakhalin project to $20 billion, fuelling brokers' concerns.

Britain

HSBC was up ??0.10 to ??9.24 as the bank and state-owned German bank LBBW have begun talks about the potential buyout of their jointly held German private bank Trinkaus & Burkhardt, the Financial Times wrote.

Cadbury Schweppes was up ??0.05 to ??5.48 after UBS raised its target price on the drinks and confectionary group to ??5.45 from ??5.30 and reiterated its neutral rating. Meanwhile, the Mail on Sunday reported that the company is finalising plans to dispose of Schweppes and other well known brands for ??750 million.

Engine maker Rolls??oyce was up ??0.05 to ??3.08 after Credit Suisse First Boston lifted its target price to ??3.35 from ??2.70 and retained its outperform rating.

Broadcaster ITV was down ??0.03 to ??1.23 after the bank Dryden downgraded the company to a sell rating, noting that the shares are up 16% so far this year mainly because of private-equity bid speculation. The broker said that it was somewhat sceptical because of the company's flat or declining top line, in turn stemming from the audience fragmentation as multichannel television grows. Meanwhile, the Financial Times reported that a consortium that was considering a possible bid for the company fell apart amid concerns about the size of its pension fund deficit.

France

Motorway operator Autoroutes Paris-Rhin-Rhone was up ??1.85 to ??51.95 after the French government confirmed the launch of the sale of its stake in motorway operators, according to the newspaper Les Echos. In an interview with the financial daily, the French Finance minister Thierry Breton said that the state is looking for long-term investors, preferring cash to stocks. The privatisation could yield some ??11 billion. Potential bidders have until August 22 to table offers. Societe des Autoroutes du Nord et de l'Est de la France, also part of the deal, was up ??2.00 to ??48.26.

Drugmaker Sanofi-Aventis was down ??0.70 to ??70.25 ahead of its second-quarter sales report due out tomorrow. A MarketScope consensus points to sales of ??6.72 billion. Credit Suisse First Boston reiterated its overweight rating, and ??67.0 target. The bank ING forecast a 9% rise in underlying sales to ??6.73 billion, in line with consensus forecasts. It maintained its hold recommendation and ??68 target.

Media group Vivendi Universal was down ??0.41 to ??26.39 after Zenith-Optimedia, a leading industry forecaster, said that television's share of the global advertising market will fall this year as investors switch money to the internet, according to the Financial Times. Zenith-Optimedia expects the global TV market share to decrease from 37.5% this year to 37.3% next year in what mark the beginning of a "long, newspaper-like" decline.

Business support services group Fimalac was up ??6.83 to ??44.08 after saying that it will sell its Facom Tools business to Stanley Works in exclusivity for ??410 million in cash. Stanley Works CEO John F. Lundgren said that the deal represents a unique opportunity to further their consolidation strategies in the European market.

Germany

Drug and chemical maker Bayer was up ??0.42 to ??28.60, after saying that its Avelox IV antibiotic won approval in most European Union countries.

Chipmaker Infineon was down ??0.10 to ??8.31 as it announced that Wolfgang Ziebart will replace Von Zitzewitz as head of the memory chip division following allegations of bribery. The supervisory board accepted von Zitzewitz' resignation following "grave allegations" regarding payments for motorsport sponsorships. The company confirmed that Von Zitzewitz is under investigation, though the firm itself is not part of the investigation and is co-operating with the authorities. The bank Sal Oppenheim does not see the departure of von Zitzewitz as a threat to the value-enhancing DRAM spinoff discussion, as it believes that a new ,xternal management for the DRAM business should increase credibility and contribute more emphatically to the necessary turn round of this loss-making division.

Pfleiderer, a wood products maker, was up ??1.06 to ??15.80, after the company agreed to buy the wood production unit of Kunz Gruppe for about ??212 million in stock. The company said that profit at its wood unit will double after the purchase. Earnings before interest, taxes and depreciation will rise to more than 200 million from 78.9 million. The bank Sal Oppenheim said that what is not so positive is that the company will likely take on an additional ??480 million in debt, which together with its current estimated net debt of ??120 million accumulates to a net debt of approximately ??600 million.

Machinery maker IWKA was down ??1.29 to ??18.20 after the company said that operating profit at its automotive technology and robot technology division will be lower than expected in 2005 as carmakers reduce capital spending. Conditions have "further deteriorated," the company said. According to an ad hoc disclosure from last Friday, all six shareholder representative members will resign at the close of an emergency general meeting to be held by the end of October. The bank Sal Oppenheim said that the profit warning confirms its cautious view on the company's operating business trend.

MTU aero engines was up ??0.55 to ??24.65 after Deutsche Bank initiated coverage with a buy, and ??28 target. The bank said that the company provides a clear play on the civil aerospace cycle upturn. In its view, the company deserves to trade largely in-line with key civil sector peers, Rolls-Royce and Safran, which highlights the potential for a 14% upside to the shares.

Italy

The bank BNL was up ??0.03 to ??2.73 as insurance group Unipol said it will launch an ??2.7 cash per share counterbid for the 59% of capital it, and a group of allies, does not already own in the company. The offer, which is in opposition to a bid by Spanish bank BBVA, will start in September. BBVA's ??6.8 billion all-share offer for the company closes July 22. Unipol, meanwhile, fell ??0.06 to ??3.07 on the news.

Nordics

Appliance maker Electrolux was down 2.00 Swedish kronor to 167.00 kronor, as the company is expected tomorrow to post a fall in second-quarter pre-tax profit of 18% year on year to 1.74 billion kronor, hit by weak markets and rising raw material costs, according to a Reuters poll. Second-quarter sales are expected to be flat at 31.95 billion kronor. Separately, Whirlpool bid $17 per share for Maytag in the US.

Switzerland

Novartis was up 0.70 Swiss francs to 63.30 francs, after CFO Raymund Breu told the financial newspaper Finanz & Wirtschaft that the drugmaker has no far-reaching plans to cut sales and marketing costs, in contrast to US-based Wyeth, which is slimming down its sales force to cut costs. On the broker front, Bank Leu reiterated its buy rating on robust first-half figures and positive newsflow outlook. Further on the broker front, Bank Sarasin increased its price target from 65 Swiss francs to 67 francs, with a neutral rating.


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