European shares hurt by AstraZeneca, Shell

Thu Jan 31, 2013 12:49pm GMT

* FTSEurofirst 300 down 0.4 percent
    * AstraZeneca down sharply, warns of tough year ahead
    * Royal Dutch Shell knocked by results

    By Tricia Wright
    LONDON, Jan 31 (Reuters) - European shares fell on Thursday
as investors waded through a stack of earnings reports, with
disappointing results from heavyweights AstraZeneca and Royal
Dutch Shell taking their toll on market sentiment.
    The FTSEurofirst 300 was 0.4 percent weaker at
1,166.31 by 1233 GMT, extending Wednesday's 0.6 percent drop,
although the index remains on track to round off January in
solid fashion with a near 3 percent rise for the month.
    The market may have been knocked over the last couple of
days, but investors reckoned any corrections should be
considered short-term, and that the rally which has hoisted the
index to near two-year highs has further to run.
    "With markets looking overbought in the short term I would
expect to see a few sharp dips along the way," Mike McCudden,
head of derivatives at stockbroker Interactive Investor, said.
    "I wouldn't be surprised to see the FTSEurofirst 300 tick
marginally higher in February as the general economic picture
continues to improve."
    On the first big day of the European earnings season,
AstraZeneca and Royal Dutch Shell were left
nursing respective falls of 5.1 percent and 1.8 percent, with
the pair accounting for around a fifth of the index's drop.
    AstraZeneca, Britain's second biggest drugmaker, said it
faced a tough 2013, with earnings set to decline "significantly
more than revenue" as operating costs rise. 
    "Unlike rivals, Astra does not enjoy the cushion of
alternative revenue streams such as consumer healthcare, with
the group currently providing a major play on scientific
development and innovation," Keith Bowman, analyst at Hargreaves
Lansdown Stockbrokers, said in a note.
    "Austerity and government efforts to curb health spending
are not helping, whilst the general lack of optimism surrounding
its developmental pipeline and already reduced cost structure
potentially dampen its attractiveness as a takeover target."
    Trading volume in AstraZeneca was robust, at 203 percent of
its 90-day daily average, against the FTSEurofirst 300 on 53
percent of its average.
    Meanwhile, oil major Royal Dutch Shell's fourth-quarter
results significantly undershot expectations.
    "Overall, the Q4 results are slightly disappointing but
medium-term growth targets are reconfirmed. We expect downward
revisions to our forecasts for 2013 (currently EPS 477 cents)
and will review our 'hold' recommendation after considering
today's disclosures," Liberum Capital said in a note.
    The broker noted that the shares offer a yield of about 4.8
percent and "robust if unexciting" growth prospects, retaining
its view that Shell remains attractive relative to BP.
    Among brighter spots, Ericcson jumped 9.1 percent
on higher-than expected fourth-quarter core profit and revenue
growth, raising hopes the world's top mobile telecom gear maker
is beginning to shake off the global downturn.
    Trading volume in Ericcson stood at 243 percent of its
90-day daily average.
    While the earnings releases from AstraZeneca and Royal Dutch
Shell may have darkened the mood on Thursday, Standard Life's
Andrew Milligan noted that factors affecting pharma and oil are
very different from those impacting the broader stock market.
    "Can we press higher? We certainly can - as long as we get
an absence of major bad news and as long as companies continue
to support investor hopes by being able to demonstrate that
they've got some helpful cash to deliver back in dividends,
share buybacks, or investment," said Milligan, head of global
strategy at Standard Life Investments, which has 163.4 billion
pounds ($258.1 billion) of assets under management.