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Europe: Utilities, autos help European shares turn around, results weigh on Pandora

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[LONDON] European equities turned positive after a damp start on Tuesday as strong gains in utilities, auto and energy stocks outweighed losses from Pandora after disappointing results. Investors pointed to strong earnings growth as the second-quarter results season powered on.

The pan-European STOXX 600 index was up 0.2 per cent, while blue chips rose 0.4 per cent.

Britain's FTSE 100 was also up 0.2 per cent, and Germany's DAX gained 0.3 per cent.

Year-on-year earnings growth for the quarter is running at 17 per cent so far, with results in from 70 per cent of MSCI Euro zone companies, Thomson Reuters data showed.

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Market voices on:

"Investors should be confident that earnings growth is coming through," said Andrew King, head of European equities at BNP Paribas Investment Partners. "The aggregate level of earnings growth looks to be very very high." Some 51 per cent of companies have beaten expectations, with this figure rising to 55 per cent for the broader MSCI Europe universe.

Most of the outperformance was down to energy stocks and financials, the key drivers of earnings growth according to Deutsche Bank strategists.

"If you strip out the banks and energy it's a lot less - but if you disaggregate the two strongest sectors from any index you're going to get worse figures; so I don't think it's that legitimate to do this," said King.

While moves in the index were muted on the day, earnings caused some sizeable price action among single stocks.

Results hit shares in jewellery maker Pandora, which slumped 14 per cent after second quarter results lagged estimates.

Falls in Paddy Power Betfair and InterContinental Hotels Group weighed on the European travel and leisure sector, which was the biggest sectoral faller with a decline of 0.7 per cent.

Finnish tyre maker Nokian soared 6.4 per cent, however, set for its best day in nine months after reporting better-than-expected quarterly profit on improved Russian demand, and raising its forecast.

It helped autos stocks jump 0.5 per cent.

German power plant and energy trading group Uniper gained around 3.4 per cent after it lifted its outlook for operating profit and dividend, helping the utilities sector outperform.

Uniper peers RWE and E.ON led gains on the DAX.

Credit Agricole jumped 2.8 per cent, top of France's blue-chips and boosting European banks.

Some 67 per cent of European financials have either met or beaten expectations for the second quarter, according to Thomson Reuters data.

"The sector is seeing a broad-based earnings recovery, benefiting from improving net interest income on the back of accelerating loan growth, lower provisions (eg French names), better fee income (eg Dutch banks) and solid wealth management results (in particular Swiss names)," Deutsche Bank's strategists said in a note.

REUTERS

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