Bad earnings see Europe’s shares take a tumble

EUROPEAN shares retreated yesterday as disappointing earnings updates weighed on banks and pharma stocks, though a well-received outlook from Vodafone helped Britain’s FTSE 100 touch a record high.

Germany’s DAX also hit a fresh all-time peak before reversing course to trade 0.1% lower. The pan-European STOXX 600 index was down 0.3%.

The FTSE 100 index rose 0.5%, however, buoyed by a near 4% increase in Vodafone as investors overlooked its €6.1 billion (R23.2bn) net loss for the year through March and focused instead on its forecast for earnings growth in the current year.

Analysts at Jefferies highlighted Vodafone’s strong cost reduction as supporting its confident dividend growth guidance.

Vodafone lifted Europe’s telecoms sector, which is up 4.8% so far this year but remains among the weakest sectoral performers, and has underperformed a 9.6% gain in the broader STOXX 600 index.

“At the moment it’s a moderate performance by the sector as a whole,” said Ken Odeluga, market analyst at City Index, adding that weakness in BT has weighed on the sector.

“As we’ve seen with Vodafone, its margins are the best in Europe and organic service revenue growth in Europe is still in the single digit percentage points, so it’s highly competitive. That’s why you see (firms) like Vodafone looking overseas to Africa, India, where it’s faced its biggest troubles in the year,” Odeluga said.

Health care was the weakest European sector, dragged down by a 9.6% drop in BTG’s shares after the British healthcare firm published its full year figures, disappointing with a slower-than-expected growth forecast.

Likewise disappointing updates also hit shares in budget airline easyJet, lender CYBG and support services firm DCC.

As the first-quarter earnings season gathers pace the overall picture, however, is a bright one for Europe. Of the 76% of companies that have reported first-quarter updates, 66% have beaten analysts’ expectations, pointing to earnings growth of around 20%, according to Thomson Reuters I/B/E/S data.

Swedish packing materials firm BillerudKorsnas saw its shares drop nearly 3%, touching their lowest level since July, after warning of a significant financial impact in the second quarter following a breakdown of a pulp line at its Gruvon Mill.