Inflation fears hit European equities

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A mixed crop of earnings left European equities struggling to make headway on Tuesday, with early losses on Wall Street further undermining sentiment.

The FTSE Eurofirst 300 index finished the session 0.9 per cent lower at 1,326.70.

KPN bucked the weaker trend after reporting a stronger-than-expected 10 per cent rise in second-quarter core earnings and an improving outlook.

The company said accelerating fixed line disconnections were offset by improvements at its German E-Plus division and proposed an interim dividend of €0.16. Shares gained 5.6 per cent to 9.39.

“We retain our bullish stance on this name,” said Terence Sinclair at Citigroup. “KPN offers investors a well-run company that is undervalued.”

He added: “We are confident that slowing declines in the fixed business can be tempered, and growing mobile margins, particularly in Germany, are important.”

The banking sector reporting season continued with Deutsche Bankunveiling a 30 per cent rise in second-quarter net profit.

However, investors were disappointed in the bank’s trading performance as revenues at its equity investment unit dropped 50 per cent amid “challenging” conditions. The shares fell 4.7 per cent to €86.

Allied Irish Banks, however, gained 1.5 per cent to €19.22 after reporting a forecast-beating 47 per cent surge in first-half pre-tax profit.

“AIB remains our top Irish bank pick,” said Jason Napier at Deutsche Bank. “All divisions are performing well, the Irish economy and the segments of the UK market in which it operates are also very strong.”

This gave Allied’s domestic rivals a welcome boost. Bank of Ireland climbed 1.2 per cent to €7.54 and Anglo Irish Bank ended flat at €11.42, easily outperforming a European banking sector that tumbled 1.2 per cent.

The luck of the Irish ran out for Ryanair, however, as warnings of a tough winter hit the no-frills airline. In spite of reporting a much better-than-expected 80 per cent leap in quarterly profits, chief executive Michael O’Leary said the “outlook for the rest of the year remains cautious”. The stock fell 3.2 per cent to €7.54.

Drugmaker Elan‘s shares initially rose more than 3 per cent after announcing it had cut its losses in the second quarter.

However, although the company said it was poised for a return to profitability following the relaunch of its troubled multiple sclerosis drug Tysabri, the shares succumbed to the pressures of the wider market and ended with a loss of 0.3 per cent at €11.69.

Man, the German truckmaker and heavy engineer, climbed 0.5 per cent to €56.88 after it raised its sales and profit forecasts following a 60 per cent jump in second-quarter operating earnings. Booming commercial vehicle sales and growth in the energy sector, along with cost cutting, were behind the surge in profits, said Hakan Samuelsson, chief executive.

Deutsche Post reporting a day after Dutch rival TNT’s well-received results, said losses at its DHL parcel delivery service in the US had hit its second-quarter operating profits. The shares fell 4.3 per cent to €18.55.

Andrew Chu at Credit Suisse said the disappointing results left question marks over whether the company’s full year targets were achievable.

He added: “While we think these risks are more than priced in, the lack of visibility and risk to earnings could continue to weigh on the share price in the short term.”

TNT shares fell 0.3 per cent to €27.63.

Recovering domestic markets and growth in food sales drove a sharp increase in Metro’s second-quarter operating profit. The German retailer’s consumer electronics unit, meanwhile, was boosted by the World Cup, helping the company record a forecast-beating 24 per cent rise in core earnings.

Metro shares, however, fell 2.1 per cent to €43.73 on rumours that the Haniel family, a major shareholder, was poised to place a large stake in the company. A spokesman for the family denied the rumour.

Suez, the French utility, fell 2.5 per cent to €31.65 after reporting a 10.2 per cent rise in first-half sales which fell short of market expectations. Gaz de France, Suez’s proposed merger partner, fell 1.7 per cent to €27.38.

Cosmote, the Greek mobile phone operator, rose 2.3 per cent to €18 after it received approval from the competition authorities in Bulgaria and the former Yugoslav Republic of Macedonia to acquire the retail telecoms operations of Germanos.

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