EUROPE MARKETS: Telecom Stocks Hold Focus In European Markets

LONDON (Dow Jones) -- Telecommunications stocks held the spotlight in Europe on Tuesday, reflecting further sector consolidation moves, as broader markets came off earlier highs following a lower start to U.S. equity trading.

The French CAC 40 edged 0.3% higher at 4,479.98, while the German DAX 30 gained 0.4% at 4,942.10. The FTSE 100 index lost 0.2% to stand at 5,335.50.

U.S. stocks opened lower on Tuesday, after the latest consumer prices report and earnings from Wal-Mart (WMT) both signaled that high energy prices may be starting to take a toll.

However, steady oil prices, recently down 19 cents at $66.08 a barrel, provided some support to European equities, while in the currency markets the euro declined 0.3% at $1.2311 amid a busy calendar of U.S. economic data.

Tuesday's activity in the telecom sector could be having a marginal spillover effect to markets, said Chris Garsten, manager of the Close Finsbury Continental European Equity Fund.

However, he said that he has a very agnostic view on Europe's telecom sector in general.

"We do hold some (telecom stocks) now because the second half of the year tends to be less dramatic in terms of stock market appreciation and they have underperformed significantly in the first half of the year," he said.

He said that he takes the view that telecom shares make for good trading stocks, and generally to be held in the second half of the year, in part because of the rapid rate of technnological change in the industry.

"Our biggest position at the moment is in Deutsche Telekom, but they (telecoms) all have broadly very similar characteristics -- high yield, low multiples, low earnings growth, big competition," he noted.

Deutsche Telekom (DT) and KPN (KPN) took center stage in telecom takeover news, confirming weekend media reports that they're no longer in talks with each other about drawing up a plan to buy the U.K.'s O2 (OOM).

Deutsche Telekom declined 0.7%, KPN lost 1.2% and O2 added to declines made Monday -- when word of the deal talk first emerged -- by dropping a further 2.6%.

Other telecom deal news involved fixed-line operator Cable & Wireless (CWP), which confirmed on Tuesday that it headed off a late challenge from Thus to buy Energis, the No. 3 fixed-line operator in the U.K.

Cable & Wireless will pay 594 million pounds ($1.07 billion) in cash, plus inject 35 million pounds on the deal's completion, and will pay up to 80 million pounds in the third year depending on C&W's share price. Shares dipped 4.9% lower in London.

However, mobile operator Vodafone (VOD) continued to hold gains on Tuesday, last unchanged at 150.5 pence, after breaking through a 150 pence barrier the previous day.

Meanwhile, other European deal speculation fixed on French cosmetics group L'Oreal , which steadied at 63.50 euros in Paris amid reports that the company is one of 10 companies to have submitted bids to buy Japanese cosmetics and food group Kanebo.

Heineken shares were also under scrutiny, up 0.6%, as it's said to be near a deal to buy Russian brewery group Ivan Taranov for around $560 million, AFX News reported, quoting financial newspaper Kommersant.

This acquisition should boost market share, said analysts at SNS Securities.

"Heineken will become a strong number three player which is positive....(however) the indicated takeover price looks demanding," the broker added.

Garsten also noted that merger and acquisitions in general are currently a feature of European equity markets and that share buybacks are also becoming a very significant theme.

"This is because managements are coming under increasing pressure because if they've got surplus cash flow -- or inefficient balance sheets, as it's called -- to do share buybacks," he said.

And in a light day for earnings news, U.K. fund manager Schroders revealed that first-half net profit rose 60% to 90.7 million pounds from the year-earlier period, in line with analyst forecasts.

The company lifted its dividend to 7 pence a share from 6.5 pence a share. Funds under management climbed 6% to 112.1 billion pounds.

Shares declined 1.7% after scoring gains of nearly 20% this year.

In broker news, J.P. Morgan changed its European strategy, upgrading food retailers to overweight and lowering automakers to neutral, citing increasing steel, plastic and oil prices as well as a stronger dollar. It also noted that food price growth should remain stable.

And shares of British newspaper groups Daily Mail & General Trust and Trinity Mirror benefited as Deutsche Bank upgraded both companies on valuation grounds.

Daily Mail & General Trust added 3.1%, while Trinity Mirror notched 1.9% higher.

(END) Dow Jones Newswires"

Posted to the site on 16th August 2005