Allied Domecq Gains on Buyout Talks

EMI up on broker upgrade; plus more of Tuesday's European stocks in the news

From Standard & Poor's European MarketScope


Allied Domecq was up £0.96 to £6.34 after the liquor company confirmed it is in talks with French group Pernod Ricard, which is working with U.S. group Fortune Brands, regarding a potential offer for the company. Allied Domecq said discussions are at an early stage and there is no certainty an offer will be made. Separately, Goldman Sachs downgraded the company to in-line from outperform.

Phone-book publisher Yell was down £0.48 to £4.22, after the Office of Fair Trading said the classified directory advertising market is not working effectively. The OFT has referred the matter to the Competition Commission for investigation. The move follows a seven-month study into the market. OFT said the structure of the market remains highly concentrated with Yellow Pages and Thomson Local Directories holding 90% of British supply, with barriers of entry high. The OFT added that the commission will now investigate further to decide on any necessary remedies. Following the announcement, the company said that in ten years since competition authorities first reviewed the market, the classified ad market has become increasingly dynamic and aggressively competitive. The company said it believes this has served customers well. It also stated that it will play an active role in helping the commission understand significant changes in the marketplace and its rapidly changing dynamics.

EMI music group was up £0.06 to £2.44, after Deutsche Bank upgraded the company to buy from hold and raised its target to £3.10 from £2.15. The bank said growth in broadband and MP3 devices will drive digital downloads and hence margins as the music industry undergoes a fundamental transformation. According to the bank, digital music revenues are opening up incremental revenue streams leading to margin benefits that should underpin significant revenue and profit growth.

SABMiller was up £0.23 to £8.45, after JP Morgan said the brewer looks set to achieve positive volume growth for the full year to March 2005 from its U.S. portfolio. The broker said this positive performance is despite a weak U.S. beer market, although it anticipates a better market performance in the spring and summer of 2005. The broker thinks that the company should achieve low single-digit sales value growth in fiscal-year 2005 and fiscal-year 2006. From this base, the broker expects margins to expand into double-digits and adds that the group's strong performance in South Africa and across other countries bodes well for the group figures. The company's organic turnover growth of 7% to 8% and earnings before interest, taxes and amortisation growth in excess of 20% during the past two years has been the best performance in the sector, according to the broker, yet the company trades at less than 14 times 2005 price-to-earnings.

Glaxosmithkline was up £0.27 to £12.28, after U.S. rival Pfizer declared that 2005 would be a year of transition. The U.S. giant is targeting $4 billion of cost cuts by 2008, with large cuts coming from marketing. Pfizer added that in addition to the loss of exclusivity on a number of important products, there are also uncertainties on the outlook for the Cox-2 franchise, continued pricing pressures and market expectance for new products. Pfizer expects 2005 revenues to be substantially unchanged from 2004 and added that the adoption of new accounting regulations will have a negative impact of $0.03 per share. The group says that it sees sustained long-term growth.


Drugmaker Sanofi-Aventis was up €1.55 to €66.60, in the wake Pfizer's announcement. In addition, Prudential reportedly initiated coverage of Sanofi-Aventis with an overweight rating. Separately, the British National Institute of Clinical Excellence backs wider use of colorectal cancer treatments, including the company's Eloxatin.

Liquor group Pernod Ricard was up €5.50 to €113.20, after UK drinks group Allied Domecq confirmed that it is in talks with the company, which is working with U.S. group Fortune Brands, regarding a potentialoffer for Allied.

Aeronautical equipment-maker Zodiac was up €1.45 to €37.70, after the company announced it has agreed in principle to buy all of the assets of C&D Aerospace Group, a U.S. company based in Huntington Beach, California. C&D Aerospace generated revenues of around $400 million in 2004 and projects that 2005 revenues will be substantially higher. The acquisition price is about $600 million and will be financed internally. The completion of the acquisition is subject to final documentation, regulatory approvals and customary closing conditions.


Engineering group Man was up €1.14 to €36.01, after the company said it expects its truck unit's operating profit to rise 29% or €100 million from €342 million in 2004. First quarter profit is expected to be clearly above last year's, while first quarter truck deliveries are expected to rise 15% and sales are expected to increase by almost 10%. The company said it expects a pay accord with unions in the second quarter. It stuck to its revenue growth forecasts of 5%. The company also said it is selling its logistical unit through a management buyout.

Salzgitter was up €0.34 to €16.34, after the newspaper Westdeutsche Allgemeine Zeitung reported that the steelmaker may consider buying or merging with a competitor, citing an interview with the company's chief executive, Wolfgang Leese. Germany's Dillinger Huette and France's Vallourec are named. Meanwhile, the brokerage Cheuvreux said that management is very confident about 2005 earnings and considers an earnings before taxes close to the €323 million achieved in 2004 possible. The broker said further selected steel price increases do not seem to be unrealistic in the third quarter, especially for heavy plate and tubes. The broker expects continued positive newsflow.

Singulus Technologies was down €0.36 to €11.84, after ABN AMRO downgraded the company to reduce from hold with a €11.2 price target. The broker said management will not give firm fiscal year 2005 guidance until the first half of 2005 results in August. The broker noted that the collapse in the fourth-quarter of 2004 orders did not bode well and said that, if the last cycle is anything to go by, the current downturn in sales could last for four to five quarters, or until the first quarter of 2006.

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