Mining Group BHP Billiton Falls

Steelmakers down on slowing demand; plus more of Thursday's European stocks in the news

From Standard & Poor's European MarketScope


Engine maker Rolls-Royce was up £0.05 to £2.54 Thursday, after the company said the adoption of International Financial Reporting Standards (IFRS) will have some impact on the presentation of its accounts but will not change its business model, strategy, risk management processes or cash flows. The company expects reported earnings per share for 2004 to increase by 29% under the IFRS, compared to 19% under Generally Accepted Accounting Principles. The company said that the underlying 2004 profit and loss account under IFRS, compared to UK GAAP will see an increase of £19m in pre-tax profit, to £364 million compared to £345 million. The company said it will result in a reduction of £861 million in net assets to £1.446 billion, compared to £2.307 billion and a £69 million rise in net debt to £149 million compared to £80 million.

Drugmaker Glaxosmithkline was up £0.20 to £12.44, after U.S. peer Merck yesterday announced that it expects first quarter earnings per share of $0.62 compared to previous guidance of $0.55. Separately, after the close today a district court in Indiana will rule on Eli Lilly's Zyprexa patent. Credit Suisse First Boston noted that if the outcome is negative this will be the first major primary patent to be successfully challenged by a generic company.

Mining group BHP Billiton was down £0.16 to £6.80, S&P Equity Research noted that metals prices have dropped. The research note said that the company ahs also suffered for securing only a 71.5% increase in iron ore prices. S&P Equity Research said the materials sector is losing momentum with concerns that Chinese demand is slowing. Investors would do well to reduce their exposure to mining stocks as there is further downside potential, according to the group.

Woolworths was down £0.16 to £0.39 after the private equity group Apax Partners On Wednesday night dropped its proposed £837 million takeover offer for the company, the Financial Times reports. Apax said it had been unable to confirm certain key cash items after undertaking intensive commercial due diligence. The abrupt withdrawal, which was announced several hours after the stock market closed, came as a surprise. The two sides had appeared to be headed for a recommended offer after Woolworths opened its books to Apax on March 18. Apax said then that it was considering a cash offer at 58.2 pence per share. Gerald Corbett, Woolworths chairman, said last night he was not disappointed that Apax had pulled out. "Their initial proposal was 50 pence to 55 pence; we rejected that," Mr Corbett said. "They came up to 58 pence which was a level that we thought our shareholders would want us to explore. We have explored it, but they've withdrawn and so it's back to business as usual."


Drugmaker Sanofi-Aventis was up €1.10 to €68.15, on expectations that a federal judge in the U.S. will rule in favor of Eli Lilly, defending the U.S. group's patent on Zyprexa. The ruling is due out this afternoon. Pharma investors feel such a decision might mean U.S. courts might be more inclined to defend patents for groups with outstanding legal challenges, like Sanofi-Aventis and its blockbuster drug Plavix. Meanwhile, the company is due to detail results under International Financial Reporting Standards. It will hold a conference call today at 1:30 GMT. Air France-KLM was down €0.25 to €13.50, as the company's unit of Air France SA is to sell as much as €450 million worth of 15-year bonds convertible into shares of the company in order to fund its investment plan. The sale starts today, with an initial amount of €350, which can be increased to €450 million.

Steelmaker Arcelor was down €0.35 to €17.31, after a report in the Wall Street Journal suggested that the demand for steel in the U.S. is starting to slow, with weakening prices prompting steelmakers to cut back production. Wednesday's Financial Times also highlighted worsening market conditions in the steel sector. However, JP Morgan remains confident in the sector, arguing that the stocks offer good valuation support. The broker retains the company and ThyssenKrupp as key sector picks. The broker also notes that the company's shares were higher yesterday after it said its buy-back programme would reach 10%.

Aerospace giant Eads, parent of Airbus, was up €0.31 to €23.46, as the Spanish government has reportedly confirmed rumors that Spain aims to increase its stake in the company from its current 5.5% to 10%. The increase in the Spanish presence could be through the state-owned holding SEPI or through private companies


Steelmaker ThyssenKrupp was down €0.23 to €15.74, also following Thursday's Wall Street Journal report on the industry. Separately, the company's Uhde unit won a €60 million contract to construct part of a Norsk Hydro chlorine plant in Norway.

Deutsche Telekom was up €0.16 to €15.66, after the Frankfurter Allgemeine Zeitung newspaper reported that cable operator Kabel Deutschland plans to expand its high-speed Internet offering to challenge the company's dominant position. Kabel Deutschland has 10 million cable customers in Germany and wants to be able to offer Internet access to 80% of its customers within three years. Kabel is owned by Goldman Sachs Capital Partners, Apax Partners and Providence Equity. Separately, Germany's largest shareholder association said that German Internet service provider T-Online's senior managers should be removed for agreeing to merge with Deutsche Telekom. DWS group filed a motion yesterday calling for resignations, including that of T-Online's CEO Rainer Beaujean. The motion will be voted upon at T-Online's annual general meeting on April 28 if supported by more than 10% of participating shareholders

Electronic components maker Epcos was down €0.63 to €9.49, after the company reported it has a fiscal second-quarter loss due to lower prices and one-time items and said it can not rule out a fiscal year loss. The loss before interest and taxes was probably €27 million, including €12 million for impairment of goodwill. Sales fell 13% to €297 million. It forecast in February that earnings and sales would fall in 2005. The company expects a charge for deferred tax assets of €25 million, and says additional costs for bring new products on line and an unscheduled €5 million charge for the closure of a plant also impacts second quarter results. The company expects second half sales to beat first half sales. The company will report final quarterly earnings on May 4.

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