Europe: Strong earnings boost shares, but France lags

[MILAN] European shares rose on Tuesday, helped by some encouraging company results, but French stocks slipped after earnings at BNP Paribas disappointed and election jitters weighed on the country's sovereign bonds.

The pan-European STOXX 600 index rose 0.3 per cent, partly recovering from losses in the previous session, while the French blue chip CAC index fell 0.5 per cent, bringing losses so far this year to more than 2 per cent.

French banks, among the best performers among European financials in 2016, fell after BNP reported results below forecasts, while the country's bond yields spiked on concerns that the far right could win France's presidential vote and take it out of the European Union.

"The political uncertainty is a burden for financials in France. Some election noise advocating for an exit from the European Union is making investors jittery," Unicredit analyst Christian Stocker said. "Financials did very well in the last 2-3 months and probably we are seeing some profit-taking now."

BNP Paribas' fourth-quarter net income rose to 1.44 billion euros (S$2.18 billion) , more than doubling from a year ago, although the result came in below the average estimate of 1.50 billion euros in a poll of analysts. Its shares fell 4.8 per cent, making them the biggest losers on the CAC.

EVLI Bank chief investment officer Kim Pessala said relatively cheap valuations and good earnings growth made him quite upbeat about prospects for European equities but political uncertainty and risks of protectionist policies from US President Donald Trump suggested caution. "We're leaning towards possibly increasing our exposure to European equities as many things look good, but there are two big uncertainties: Trump and the French elections," said Mr Pessala.

According to Deutsche Bank, the fourth-quarter season has delivered solid results so far in Europe, with financials and industrials providing the biggest contribution to an overall earnings per share growth of 8.3 per cent from a year earlier.

In Tuesday there were well received updates from chipmaker AMS, which rose 22.4 per cent, scoring its biggest one-day gain ever, and food-processing machinery maker GEA , which added 3.6 per cent after setting a brighter profit outlook.

However updates from energy companies disappointed, with stocks in the sector also penalised by a further decline in crude oil prices.

Oil major BP fell 4.1 per cent after the company missed estimates. Peer Statoil also fell 3.1 per cent after a disappointing set of results.

Finnish oil refiner Neste fell 5.5 per cent after fourth-quarter operating profit came in slightly below consensus forecasts, with some investors also citing disappointment over the lack of clarity in its renewables outlook.

But Kim Gorschelnik, head of research at Finnish asset manager FIM, said the results delivered no new negative surprises, confirming his upbeat view on the stock.

"We consider Neste as a solid quality company for a long term investor and one could consider today's share price reaction as an entry point," he said.

REUTERS