Philips Electronics provided a talking point for the market on Wednesday after it warned about slowing consumer demand in the second quarter, sending its shares tumbling.
Nomura Securities cut its rating on Philips from “strong buy” to “buy”, citing two main factors for the downgrade.
“First, a slowing economic climate in 2005 hinders the revenue growth needed to convince investors of lasting improvement in the business,” said analyst Sean Murphy.
“Second, we do not see any near-term trigger sufficiently strong to shake investors from their preconceptions towards the stock”.
But Janardan Menon at Dresdner Kleinwort Wasserstein was less pessimistic.
“We believe that today’s price drop in Philips is a buying opportunity, as over the next few months, estimates in Philips’ own semiconductor business and their unconsolidated subsidiaries are likely to increase,” he said.
“We maintain a “buy” on the stock and €25 price target.”
Philips’ shares, which had climbed some 15 per cent since the start of the year, fell 5.4 per cent to €21.32.
The broader market eased back after hitting a succession of three-year highs in recent sessions. The FTSE Eurofirst 300 index fell 4.58 points, or 0.4 per cent, to 1,132.36, as oil prices rose sharply.
Banking stocks remained in focus as ABN Amro suffered a setback to its attempt to acquire Italy’s Banca Antonveneta.
Banca Popolare di Lodi, ABN’s rival for Antoneveneta, raised its bid to €27.50 a share, eclipsing the Dutch group’s already-sweetened €26.50 a share cash offer.
ABN said it had full confidence in its offer and no plans to raise it again.
Some strategists, however, said the feeling in the market was that ABN was in a no-win situation with regard to Antonveneta.
But one London-based Italian equities specialist said the Dutch bank might feel it had a point to prove.
“My gut feeling is that this is not a knockout blow for ABN,” he said. “ABN has much deeper pockets than Lodi, and Lodi is stretching itself to what some might say are dangerous levels.”
Nevertheless, ABN Amro shares climbed 1.8 per cent to €19.62. Antonveneta shares gained 0.7 per cent to €26.91 while Lodi fell 1.5 per cent to €7.86.
Meanwhile, UniCredito continued to attract institutional interest on expectations that its takeover of Germany’s HVB Group would generate increased revenues.
UniCredito shares gained 4.7 per cent to €4.43. HVB rose 5 per cent to €21.62 while its Bank Austria unit firmed 3.1 per cent to €86.05.
Spanish building stocks tumbled following industry downgrades from UBS and Morgan Stanley. Acciona fell 2 per cent to €77.35 while Fomento de Construcciones y Contratas dropped 3 per cent to €45.71 on analyst reports that the sector may have peaked.
“We believe investors may start taking some profits from an industry that has gone up by 76 per cent in the past 3 years and 30 per cent up so far year to date,” said Morgan Stanley analyst, Alejandra Pereda, in a note.
According to Borja Castro at UBS, Spanish construction companies may face some issues in the medium term, including cuts to European Union funding for building projects and increasing difficulty in purchasing attractive assets as they diversify.
Infogrames, Europe’s top video game-maker, saw its shares soar 21.8 per cent to €1.62 after announcing operating profits of €22.2m, beating market expectations and its own guidance of €20m.
The positive result was attributed to cost reductions and the sale of licences which helped offset a 14 per cent drop in sales.
But while the company’s financial restructuring and commitment to growth seemed positive, observers noted that the wide range in forecasts appeared to suggest low visibility with regard to earnings.
Shares in Synthes, the surgical devices maker, extended Tuesday’s fall by a further 1.8 per cent to SFr141.90.
The weakness followed a downgrade by Dresdner Kleinwort Wasserstein and a report by Goldman Sachs, saying the stock was overvalued compared with the global orthopaedic sector.
Echoing comments from Morgan Stanley, Goldman Sachs analysts said in a note: “We expect the stock to underperform the European medical device sector over the next 6-12 months, as high expectations are unwound and the stock likely fetches a discount valuation to its peers.”
