Growth or Value?
How do you feel about buying a sector where the profit prospects still look challenging, but the reduction in expectations has now brought the price back onto professional investor radar screens?
As a sector it generated top-line growth of nearly 6% between 2001 and 2005 and, in many constituent companies, still has the potential to raise margins through cost cutting.
You've probably guessed we're talking telecoms. Martin Mabbutt, sector analyst at Nomura suggests European telecoms will outperform the general market in 2007. His picks are: Deutsche Telekom, France Telecom and Vodafone. Don't get hung up on top-line growth says Martin, the real story is in the valuation gap and the potential for the existing players to restructure their costs.
While on the show this morning, he made the point that while KPN and BT have navigated the over capacity issues well over the last few years that is in the price. The jam is going to be in the stocks where the market has almost lost faith in management's ability to reduce expenses. DT is the stand-out stock.
If you are reading this from outside the U.K. or India then you probably have very little interest in the unsavoury storm in teacup being created by a television show called "Big Brother". I will spare you the details. You can find them elsewhere on the Web. From our perspective we did a little digging on what the story might do to Endemol's share price - they are the creators of the program. Not much, was the conclusion offered by Anna Fokkelman, analyst at ING Wholesale Banking.
If anything, the market is much more interested in who might buy the business. That's reassuring.
Have a great weekend.