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Earnings drag on European shares, though Vodafone lifts telcos
May 16, 2017 / 7:43 AM / 2 months ago

Earnings drag on European shares, though Vodafone lifts telcos

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Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, May 12, 2017.Staff/Remote

LONDON (Reuters) - European shares ended little changed on Tuesday as disappointing earnings updates weighed on banks .SX7P and pharma stocks .SXDP, but a well-received outlook from Vodafone (VOD.L) helped Britain's FTSE 100 .FTSE touch a record high.

Germany's DAX .GDAXI also hit a fresh all-time peak before reversing course to end flat. The pan-European STOXX 600 index ended little changed, while France's CAC .FCHI fell 0.2 percent.

The FTSE 100 index .FTSE rose 0.9 percent, however, buoyed by a near 4 percent rise in Vodafone as investors overlooked its 6.1 billion euro (£5.2 billion) net loss for the year through March and focused instead on its forecast for earnings growth in the current year.

Analysts at Jefferies highlighted Vodafone's strong cost reduction as supporting its confident dividend growth guidance.

Vodafone lifted Europe's telecoms .SXKP sector, which is up 4.8 percent so far this year but remains among the weakest sectoral performers, and has underperformed a 9.6 percent gain in the broader STOXX 600 index.

"At the moment it's a moderate performance by the sector as a whole," said Ken Odeluga, market analyst at City Index, adding that weakness in BT (BT.L) has weighed on the sector.

"As we've seen with Vodafone, its margins are the best in Europe and organic service revenue growth in Europe is still in the single digit percentage points, so it's highly competitive. That's why you see (firms) like Vodafone looking overseas to Africa, India, where it's faced its biggest troubles in the year," Odeluga said.

Healthcare .SXDP was weakened by a 6.8 percent drop in BTG's (BTG.L) shares after the British healthcare firm published its full year figures, disappointing with a slower-than-expected growth forecast.

Likewise disappointing updates also hit shares in budget airline easyJet (EZJ.L), lender CYBG (CYBGC.L) and support services firm DCC (DCC.L).

As the first-quarter earnings season gathers pace the overall picture, however, is a bright one for Europe. Of the 76 percent of companies that have reported first-quarter updates, 66 percent have beaten analysts' expectations, pointing to earnings growth of around 20 percent, according to Thomson Reuters I/B/E/S data.

Swedish packing materials firm BillerudKorsnas (BILL.ST) saw its shares drop 3 percent, touching their lowest level since July 2016, after warning of a significant financial impact in the second quarter following a breakdown of a pulp line at its Gruvon Mill.

Banking stocks .SX7P were also weak, with UBS (UBSG.S) down more than 2 percent, extending losses from the previous session after Singapore sovereign wealth fund GIC Private Limited cut its stake in the Swiss bank at a loss.

Europe's energy sector .SXEP also provided support earlier in the session as the oil price rose on expectations of extended supply cuts, before easing to trade flat. [O/R]

Reporting by Kit Rees; Additional reporting by Danilo Masoni; Editing by Jeremy Gaunt

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