Chemical shares decline; Tesco shares firm after profit rises
European shares held steady on Tuesday, with gains from oil producers, British supermarket group Tesco and French automaker Peugeot offsetting some technology-sector declines ahead of key earnings releases.
The pan-European Dow Jones Stoxx 600 index (ST:SXXP: news, chart, profile) finished a fraction of a percentage point higher at 387.86, led higher by French oil giant Total (TOT : 73.40, +0.43, +0.6%) (FR:012027: news, chart, profile) , up 1% on strength in crude-oil futures and a 3.2% rise for Peugeot shares after a broker upgrade.
Regional indexes were mixed, with the U.K.'s FTSE 100 index (UK:UKX: news, chart, profile) down 0.3% at 6,497.80 as the pound rose over $2 for the first time in 15 years against the greenback after stronger-than-expected inflation data, potentially forcing the Bank of England's hand on interest rates. See full story.
The German DAX Xetra 30 index (DX:1876534: news, chart, profile) rose 0.2% at 7,348.83, while the French CAC-40 index (FR:1804546: news, chart, profile) lost 0.1% at 5,858.14 Tesco in focus Of earnings-related market moves, Tesco (UK:TSCO: news, chart, profile) saw its shares rise 1.3%. Britain's largest supermarket chain said fiscal-year net profit rose 20.5% to 1.9 billion pounds ($3.8 billion) as it continued its international expansion and fended off resurgent rivals in the U.K. See full story.
Tesco said that it has also made plans to increase its buyback program to 3 billion pounds, double the previous authorization.
However, department-store operator Debenhams (UK:DEB: news, chart, profile) wasn't doing as well, its shares trading down 15% in London. The company warned that profit for the year will be below market expectations following a slowdown in same-store sales. See full story. Technology shares softened ahead of key earnings reports from giants including Intel and IBM. Nokia (NOK : 23.92, -0.11, -0.5%) , which reports on Thursday, eased 0.3%.
On the M&A front, Telecom Italia (TI : 31.93, +0.18, +0.6%) (IT:TIT: news, chart, profile) shares lost 1.7% in Milan after AT&T Corp. (T : 39.19, -0.07, -0.2%) ended talks late Monday on acquiring a stake in holding company Olimpia. Telecom Italia parent Pirelli (IT:PC: news, chart, profile) said that AT&T's formed bidding partner, Mexican operator America Movil (AMX : 50.95, +0.23, +0.5%) , remains in talks to acquire indirect control of the company. Pirelli shares declined 1%.
Also in Italy, shares of airline Alitalia (IT:AZA: news, chart, profile) declined 5.5% to 0.9780 euros, giving the company a market capitalization of around 1.4 billion euros.
According to the Italian treasury, three consortia have submitted business plans and non-binding first offers to buy the carrier. Alitalia's shares have made gains in recent weeks ahead of the bidding announcements.
However, a report out Tuesday said that the offers were about the 0.50 euro mark, valuing the company at around 670 million euros to 700 million euros, according to Dow Jones Newswires.
ABN Amro (ABN : 49.15, +0.32, +0.7%) (NL:30110: news, chart, profile) shares continued to make gains, trading up another 2.3% as investors speculated that it could get a better offer from three banks, Royal Bank of Scotland (UK:RBS: news, chart, profile) , Banco Santander Central Hispano (STD : 18.75, -0.16, -0.8%) and Fortis, than it could from Barclays (UK:BARC: news, chart, profile) (BCS : 60.24, -0.13, -0.2%) .
Brokers weigh in Shares of Peugeot (FR:012150: news, chart, profile) rose 3.2% to 58.87 euros in Paris after Morgan Stanley upgraded the company to overweight from equal weight. The broker also raised its price target 44%, to 65 euros a share. "We believe PSA is too important a player in fuel-efficient and low-emission automobiles not to be involved in secular industry trends driven by regulation," the broker said.
Morgan Stanley also said that it will leave earnings estimates unchanged for the company for now, saying 2007 is shaping up as a transition year. Also in the sector, Volkswagen (DE:766400: news, chart, profile) shares rose 1.8% after it said it sold 1.47 million vehicles in the first quarter of 2007, which is up 8% from last year.
In Germany, shares of Merck KGaA (DE:659990: news, chart, profile) traded down 2.2% after UBS cut its stance on the pharmaceutical company to neutral from buy, citing "limited potential for earnings upgrades currently, risk to the downside in key Erbitux growth drivers, only limited upside from the disposal of the generics division and little room to increase the liquid crystal valuation further."
Also in Frankfurt, shares of Premiere (DE:PREM11: news, chart, profile) jumped 6.9% to 17.23 euros after the company was upgraded to buy from hold at Deutsche Bank.
"Our re-assessment of Premiere's fundamentals shows the company in a better strategic position now than at any time before but its share price does not reflect this. We see several subscriber- and ARPU-driven upside scenarios to our 22 euro base case valuation and therefore upgrade to buy," the broker said.
L'Oreal (FR:012032: news, chart, profile) shares slipped 0.9% to 86.30 euros ahead of the cosmetics company's quarterly sales figures, due out after the bell. HSBC also downgraded the company to neutral from overweight on valuation grounds. It said that the current share price indicates only 5% upside to its 91 euros target price.
"While 2007 should be another year of organic sales-growth acceleration, we do not believe that L'Oreal will be able to exceed its historical organic sales growth rates of 7%-plus necessary to justify further multiple expansion," the broker said.
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