27/11/2006 13:03
European equity markets made a weak start to the new trading week on Monday amid ongoing concerns about the impact of a weaker dollar on companies which generate a high proportion of their earnings in the US.
The FTSE Eurofirst 300 fell 3.3 points or 0.2 per cent to 1,447.7 while the German Xetra Dax traded 19 points or 0.2 per cent lower at 6,392.96 and the French CAC 40 lost 15 points or 0.3 per cent at 5,374.4.
RWE led the FTSE Eurofirst 300 with a gain of 3.8 per cent at €89.82 after Merrill Lynch raised its price target to €94 from €85 and reiterated a “buy” recommendation.
Merrill said strong earnings growth over the next two years would be underpinned by tightening in the German power market.
The sale of Thames Water “clearly heralds a new phase of growth through M&A” according to Simon Flowers of Merrill Lynch, who noted that RWE’s management was likely to take a cautious view of potential deals as the market is so hot with interest from private equity and infrastructure funds.
“Re-leveraging the balance sheet via a substantial capital return or share buy-back would be an option and would deliver prodigious earnings per sahre accretions,” said Mr Flowers.
Remy Cointreau announced last week that it was planning to exit from the Maxxium distribution joint venture from March 2009, a move which some in the market have seen as a precursor to another deal.
However, analysts at Goldman cautioned this view was premature and there were significant impediments to Remy Cointreau playing a part in any further industry consolidation.
Noting that Remy trades on the highest price earnings ratio in the sector (20x 2007 estimated earnings), Mike Gibbs of Goldman said this rating reflected a a bid premium which was not going to erode in the short term.
“However, if no deal is forthcoming, in the near term, then focus is likely to revert to the fundamental pressure Remy faces in one of its key markets, China.” said Mr Gibbs. Remy fell 2.2 per cent to €44.99.
LVMH fell 2.3 per cent to €80 after Deutsche bank initiated coverage on the luxury goods maker with a”sell” recommendation and a target price of €72. Jamie Isenwater of Deutsche said recovery in the Japanese luxury goods market where LVMH generates one-third of its sales, had all but stalled and this would act as a significant drag on overall profit growth.
Deutsche also noted significant risks in the US and China which account for over two thirds of LVMH’s cognac sales and said that
Deutsche Bank upgraded PPR to “buy” with a price target of €128 noting that Gucci presented a much better risk/reward senario and that group earnings per share growth of 20 per cent a year should send the shares higher. PPR traded 0.1 per cent fimer at €117.60.
Weakness continued across the carmakers’ sector amid concerns about the impact of dollar weakness on their US earnings.
DaimlerChrysler fell 1.5 per cent to €44.87 while BMW fell 1.7 per cent to €42.09 and Fiat fell 1 per cent to €14.21.
The FTSE Eurofirst 300 fell 3.3 points or 0.2 per cent to 1,447.7 while the German Xetra Dax traded 19 points or 0.2 per cent lower at 6,392.96 and the French CAC 40 lost 15 points or 0.3 per cent at 5,374.4.
RWE led the FTSE Eurofirst 300 with a gain of 3.8 per cent at €89.82 after Merrill Lynch raised its price target to €94 from €85 and reiterated a “buy” recommendation.
Merrill said strong earnings growth over the next two years would be underpinned by tightening in the German power market.
The sale of Thames Water “clearly heralds a new phase of growth through M&A” according to Simon Flowers of Merrill Lynch, who noted that RWE’s management was likely to take a cautious view of potential deals as the market is so hot with interest from private equity and infrastructure funds.
“Re-leveraging the balance sheet via a substantial capital return or share buy-back would be an option and would deliver prodigious earnings per sahre accretions,” said Mr Flowers.
Remy Cointreau announced last week that it was planning to exit from the Maxxium distribution joint venture from March 2009, a move which some in the market have seen as a precursor to another deal.
However, analysts at Goldman cautioned this view was premature and there were significant impediments to Remy Cointreau playing a part in any further industry consolidation.
Noting that Remy trades on the highest price earnings ratio in the sector (20x 2007 estimated earnings), Mike Gibbs of Goldman said this rating reflected a a bid premium which was not going to erode in the short term.
“However, if no deal is forthcoming, in the near term, then focus is likely to revert to the fundamental pressure Remy faces in one of its key markets, China.” said Mr Gibbs. Remy fell 2.2 per cent to €44.99.
LVMH fell 2.3 per cent to €80 after Deutsche bank initiated coverage on the luxury goods maker with a”sell” recommendation and a target price of €72. Jamie Isenwater of Deutsche said recovery in the Japanese luxury goods market where LVMH generates one-third of its sales, had all but stalled and this would act as a significant drag on overall profit growth.
Deutsche also noted significant risks in the US and China which account for over two thirds of LVMH’s cognac sales and said that
Deutsche Bank upgraded PPR to “buy” with a price target of €128 noting that Gucci presented a much better risk/reward senario and that group earnings per share growth of 20 per cent a year should send the shares higher. PPR traded 0.1 per cent fimer at €117.60.
Weakness continued across the carmakers’ sector amid concerns about the impact of dollar weakness on their US earnings.
DaimlerChrysler fell 1.5 per cent to €44.87 while BMW fell 1.7 per cent to €42.09 and Fiat fell 1 per cent to €14.21.
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