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Vodafone retreated after posting a sharper than expected fall in quarterly revenue due largely to problems in South Africa reported yesterday. Full-year guidance was reiterated.

On an adjusted basis, Vodafone’s service revenue for the fiscal third quarter was down 0.8 per cent versus a 0.7 per cent decline expected by the consensus. The figure would have been worse had it not been for currency effects, which included inflation in Turkey that turned a revenue decline in euro terms of around 18 per cent into 14.8 per cent growth.

On the conference call, Vodafone management was confident that revenue would pick up from the start of its next financial year in April as commercial performance improves, competition lessens and price cuts in Italy and Spain fall out of year-on-year comparisons.

Intel plunged in US pre-market trading after missing expectations with its fourth-quarter results and cutting first-quarter guidance. The company highlighted weakening demand for datacentres, a sales shortfall for modems and pricing pressure on flash memory chips as problem areas.

“Management’s expectations for 2019 point to a modest 1 per cent revenue growth rate and a contraction in operating margin, which we view as a significant change in tempo following circa two years of meaningful expansion under CFO and interim CEO Bob Swan.”

Goldman Sachs

Repeating “sell” advice, Goldman argued that “the bar is particularly high” for Intel in 2019 because competition was increasing and its previous growth drivers, most notably datacentres, were going into reverse.

Sellside stories

● Jefferies downgraded Fevertree Drinks, the tonic water maker, to “hold” from “buy”.

“Fevertree [is] one of the most attractive growth stories in European beverages given the potential for premium mixers internationally. However, near-term there is risk of a hiatus . . . as growth in the UK core business moderates before the future growth engine, the US, accelerates.”


A 5 per cent deceleration in the UK would require 20 per cent acceleration in the US to maintain Fevertree’s group growth, Jefferies said, adding: “Whilst we do not rule out faster than expected growth given the company’s historical track record of under-promising and over-delivering, UK Nielsen data will likely continue to point to normalisation of demand in the UK.”

Nielsen data for December published today showed Fevertree’s UK sales growth slowing to 26.2 per cent, from 27.3 per cent and 31.8 per cent in the previous two reports. That implied growth in Fevertree’s key market had slowed from 97 per cent in the first quarter 2018 to 28.4 per cent in the fourth, said Jefferies.

● Goldman Sachs and Citigroup both turned cautious on European real estate investment trusts. Citi cut recommendations on 14 stocks including British Land, Hammerson and Land Securities, while Goldman’s downgrades included Intu and Klépierre.

Expect an end to the current European office market cycle, said Citi, as rents “are at or near cyclical peaks”. Supply and demand have been favourable but to make investible returns at current book values, yields need to rise in anticipation of declining rents, it said. “The 20 to 30 per cent capital value decline we forecast is not priced into European real estate stocks [including in the UK],” added Citi.

On shopping centres, Citi said that the shift “from brick to clicks is in its infancy meaning the outlook for shopping centre rents and values is increasingly risky”. It forecast valuation downgrades to come of between 20 per cent and 40 per cent.

“Once the negativity of a downturn in real estate markets has begun, historically stocks fall further than what was ultimately born out in direct fundamentals. Stock, and real estate, markets rarely stay flat.”


Citi’s note moved to “sell” ratings on British Land, Carmila, Coima Res, Colonial, Covivio, Derwent London, Gecina, Great Portland Estates, Hammerson, Icade, Intu Properties, Klépierre, Land Securities and Merlin Properties. Shaftesbury was downgraded to “neutral”.

Goldman also argued that commercial real estate markets had peaked, “most obviously in retail but also in offices”. It advised clients to seek out the patches of strength, such as in residential and offices in continental Europe.

It moved to “sell” ratings on Castellum, Intu, Mercialys and Merlin Properties, with Alstria and Klépierre cut to “neutral”. However, the broker also upgraded Land Securities to “neutral” and added both Gecina and Grand City to its “buy” list.

● In brief: AstraZeneca upgraded to “buy” at Shore Capital; Bakkavor cut to “hold” at HSBC; Cranswick rated “hold” at HSBC; Dairy Crest rated “buy” at HSBC; Fresnillo upgraded to “buy” at UBS; Gjensidige cut to “neutral” at Merrill Lynch; Greencore rated “buy” at HSBC; Hilton Food rated “hold” at HSBC; Iberdrola upgraded to “buy” at HSBC; ITV downgraded to “hold” at Société Générale; NCC upgraded to “buy” at Citigroup; SCA cut to “underperform” at Merrill Lynch; SGS downgraded to “neutral” at Credit Suisse; Spectris upgraded to “buy” at Investec; Sureserve raised to “buy” at Peel Hunt; Swatch downgraded to “neutral” at Credit Suisse.

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Robust earnings help European stocks extend gains

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