Deutsche Asset Management is overweight European telecoms with a focus away from the largest compani...
Deutsche Asset Management is overweight European telecoms with a focus away from the largest companies in this sector.
James Anderson, fund manager, Continental European equities at Deutsche, is favouring stocks including Tele Danmark and Telefonica but is avoiding large stocks such as France Telecom on valuation grounds.
Anderson said: "In the telecoms part of the market we are marginally overweight and the reason we do not have more is that the telecoms stocks that we like are not the bigger ones. Our approach is more about finding good stocks in particular areas and our sector weightings are driven by this."
Anderson is keen on Tele Danmark on the back of its relative valuation and because he believes its share price may benefit from being a potential takeover candidate. Tele Danmark is on a P/E of 19.9 times compared to France Telecom, which is on a P/E of 34.03 times. Tele Danmark saw its share price fall by 37.52% in the period between 30 December 1999 and 2 January 2001 in local currency terms. France Telecom's shares fell by 33.01% in euro terms over the same time period.
Graeme Kyle, investment manager, European equities at Aegon Asset Management, is less keen on the European telecoms sector where the group is underweight.
He says: "There are two key issues in the European telecoms sector for investors. The first is the funding of the sector - many of the firms in this sector are under-capitalised. They have grown too quickly in the belief that the equity and bond markets will continue to fund that growth and there is still significant debt and equity issuance required which should depress the sector."
Kyle also points out that the heavy investment many large European telecoms firms have made in gaining third generation mobile licences may prove to be misguided. He says: "There is no evidence at all to suggest that there will be a significant return on these investments. It appears that the market does not have the same vision as the management of these companies in terms of the extent mobiles will be used for data transmission. But if any evidence comes through that the market is underestimating the impact of third generation mobile services then this sector will take off."
Anderson holds Telecom Italia Mobile for its exposure to the strongly growing Italian mobile market and Telefonica in Spain.
Anderson says: "We like Telefonica because the firm made large network investments in Latin America around 10 years ago and the networks that it has built have proved to be very profitable. It also has exposure to the internet market through its Terra Networks subsidiary - this gets access not only to the Spanish speaking parts of Europe but also to Latin America as well, which gives them a market of 500 million to 600 million people."
Telefonica is on a P/E of 31.82 times and saw its share price fall by 29.6% in euro terms in the period between 30 December 1999 and 2 January 2001.
Kyle is keen on Portugal Telecom which he says is undervalued. The stock is benefiting from exposure to the growth in the Brazilian mobile market, he says, and is on a P/E of 19.75 times.
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