The US Federal Reserve has ridden to the rescue of beleaguered markets, but Vodafone is missing out.
The telecoms group is down 1.3p to 203p on worries about increased competition, and a possible pricey bid for Italian broadband firm Fastweb, said to have been put up for sale by owner Swisscom.
Nomura, highlighting competition worries, has cut its target price to 180p from 190p and downgrades Vodafone to reduce from neutral. It said:
Vodafone has outperformed the sector by 7% and the FTSE by 12% over three months and now trades at 7 times forward EBITDA (incumbents 6.5 times) compared with 5.1 times at the start of 2013. The market has priced in substantial benefits from market repair, but we believe that competition may well increase, rather than decrease over the next 12 months:
We expect new entrants in the UK, the Netherlands and India. Tougher competition is taking hold in South Africa and Turkey for the second successive quarter. Underlying growth rates are slipping. Drillisch's LTE offers will act as a check on pricing in Germany and may yet accelerate the current trend for pricing cuts in Vodafone's largest market. Yoigo will resume its discount position in Spain post consolidation of the convergent mobile virtual network operators
Lastly, European corporates are exploiting data as a means to reduce voice/messaging spend.
The evidence for Project Spring delivering a step-change in customer experience remains weak. Recent surveys in the UK and Germany show Vodafone in a poor light and undermine its aspiration to demonstrate and monetise a sustainable premium positioning on quality. This in turn increases our concern for Vodafone's medium-term dividend.
Espirito Santo's Andrew Hogley, meanwhile, issued a sell note at the prospect of a Fastweb bid:
Several press reports over the past couple of days (FT, Reuters) have put the possibility of a Vodafone acquisition of Fastweb back on the agenda. We do not believe that Swisscom is the right owner of this asset and can see the potential for synergies with Vodafone's Italian business but find some of the suggested multiples, in the 8 times to 10 times EBITDA range, surprising for a business that generates next to no cash flow.
We understand that Swisscom is looking to recoup its investment, which we calculate to be around €4.2bn, in our view Vodafone could not justify paying this much.
Overall though, the mood is more buoyant despite the continuing threat of the Ebola virus spreading, as well as worries about an economic slowdown, especially in China and Germany. After a series of disappointing figures from the eurozone powerhouse this week came another set, with exports falling at the fastest rate for five and a half years.
But with the Fed's minutes suggesting that fears of an early interest rate rise were misplaced, US and Asian markets moved higher, and this was followed through in Europe.
So the FTSE 100 is up 47.04 points at 6529.28, with Michael Hewson at CMC Markets saying:
US equity markets [rallied] hard into the close, after a rather surprisingly dovish set of Federal Reserve minutes sent the US dollar plunging and brought US stock markets off multi week lows.
Markets had almost whipped themselves up into a frenzy of expectation that these minutes might well have had a rather hawkish tone, not altogether surprising given the additional dissent from the Dallas Fed's Richard Fisher.
Contrary to this expectation the minutes showed that officials were more concerned that the recent strength of the US dollar could weigh down US inflation expectations, and in turn affect US growth prospects, while at the same time the slowdown in Europe could well limit the growth potential in the US over the next year or so, as they revised down their GDP expectations for 2015.
With the Fed minutes boosting metal prices - a factor of the dollar's decline - the recently weak mining shares are leading the way. Randgold Resources has risen 293p to £43.43 while Mexican precious metals miner Fresnillo is up 43.5p at 767p, Antofagasta has added 24p to 699p and Rio Tinto is up 88.5p to 3077.5p.
Among the losers Associated British Foods - owner of British Sugar as well as the more high profile Primark - is down 13p at £25.52 after Germany's Suedzucker said the European sugar and ethanol markets had continued to deteriorate.
And in a change determined by new European rules on settlement of trades, the ex-dividend day has moved from Wednesday to Thursday. So Aviva is 4p lower at 509p and Kingfisher has dipped 1.7p to 311p after their shares were quoted without the shareholder payout.
