Banking speculation leads Europe higher

Bid speculation among Nordic banks and gains for Ahold led European equity markets higher on Tuesday but sentiment remained cautious as investors awaited the latest decision on US interest rates from the Federal Reserve.

The FTSE Eurofirst 300 rose 5.8 points, or 0.4 per cent, to 1,462.53.

Deutsche Bank said the bull market for European equities should extend into a fifth year into 2007. Bernd Meyer, analyst, said consensus earnings forecasts of 8-9 per cent growth appeared achievable and valuations were attractive with some scope for equities to enjoy a re-rating as interest rates were expected to decline.

Nordea jumped 6.7 per cent to SKr107, as bid speculation swirled around the Nordic region’s largest bank after it was revealed that Finland’s Sampo had bought a further 12.8m shares in November. Sampo rose 3.1 per cent to €20.20, but some analysts thought the company was only seeking a tactical holding in Nordea ahead of the Swedish government’s sale of its remaining holding rather than preparing a full bid.

The news sparked gains for peers SEB, up 2.6 per cent to SKr213.00 and Svenska Handelsbanken, 0.5 per cent firmer at SKr192.50.

Ahold gained 3.9 per cent to €7.81 as speculation mounted over the pace and depth of the Dutch retailer’s restructuring programme.

In November, Anders Moberg, Ahold’s chief executive, bowed to shareholder pressure and agreed to sell some of its US interests but hedge fund investors have been pressing for more radical action.

UBS said Ahold could raise €5.5bn ($7.28bn) from asset disposals, pay back up to €2.7bn in debt and enjoy significant earnings enhancement via a share buy-back. Centaurus and Paulson – the hedge funds that together hold 6.4 per cent – are still calling for a complete US exit and UBS said they were likely to resume their agitation given the recent weakness in Ahold’s share price.

ABN Amro rose 2.3 per cent to €23.39 after the Dutch investment bank said last year’s acquisition of Banca Antonveneta would deliver higher revenue synergies (estimated at €250m from €100m originally), underlining the potential attractions of Italian banks to foreign predators.

Umicore gained 5.1 per cent to €121.60 after the Belgian metals smelter announced a joint venture with Australia’s Zinifex, which will eventually create the world’s largest zinc smelting producer. The new company will produce 1.2m tonnes of zinc annually and is expected to be separately listed via an IPO in late 2007 or early 2008.

Sophie Jourdier of Citigroup said the joint venture could deliver synergies worth €5 a share for Umicore and drive a re-rating of its shares as the transformation into a high-return precious metals company was completed. Citigroup reiterated its “buy” rating and €150 price target.

Deutsche Borse moved 2.1 per cent lower to €134.22 after WestLB downgraded its recommendation on the bourse operator from “add” to “hold” on valuation grounds after the stock’s recent strong run.

WestLB resumed coverage of Arques Industries, the German venture capital group, reiterating a “buy” recommendation and raising its price target from €16 to €20.

This week, Arques raised its earnings forecasts for 2006 and 2007 and said it envisaged making larger acquisitions involving companies with sales of more than €500m.

Wolfgang Fickus at WestLB said Arques was expected to make at least two further disposals, which should fuel confidence that profits can be generated from its portfolio. Arques dipped 0.9 per cent to €15.01.

Further consolidation in the German staffing market looks certain after Adecco Germany signalled its intent to pursue deals. Amadeus Fire, the market leader for higher qualified temping staff in the finance sector, is seen as a likely target. Amadeus Fire fell 2.4 per cent to €14.15 while Adecco, the world’s biggest temporary employment group added 1.1 per cent to SFr83.30.

Carrefour gained 2 per cent to €47.22 as the value of the French retailer’s interests in China were underlined by Tesco’s decision to acquire the remaining half of Hymall, a China-based supermarket chain.

Philips Electronics eased 0.7 per cent to €27.72 after its LG.Philips LCD joint venture in South Korea shed nearly 8 per cent following probes into price fixing.

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