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Cyclicals boost European shares while Dixons Carphone plummets

[LONDON] Gains by cyclical sectors helped push European stocks higher on Thursday while heavy losses in Dixons Carphone after a profit warning dominated trading.

The pan-European Stoxx 600 was up 0.2 per cent at its close, in line with euro zone stocks and blue chips.

Dixons Carphone shares plummeted as much as 29 per cent after the mobile phone retailer downgraded expectations for full-year profit, reflecting tougher conditions in the mobile market as customers hold on to handsets for longer.

"With the December results some way off and Black Friday week (of retail discounts) looming, Dixons will be under pressure to provide additional detail on today's complex variables in coming weeks," said Stifel analysts.

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Dixons Carphone was the worst-performing among European retail stocks so far this year, even before Thursday's decline wiped nearly a quarter off its market value. The index was down 0.2 per cent on the day as Dixons weighed.

Bank of America Merrill Lynch European equity strategist Ronan Carr said he didn't favour Europe's retail sector, partly because of its heavy skew towards British companies.

In general results this quarter have seen investors punish companies that missed expectations particularly harshly, a trend which analysts put down to slowing macroeconomic momentum.

"Expectations caught up with what have been solid fundamentals and we are at a juncture now where some macro indicators have shown signs of topping out," Mr Carr said, pointing to US dollar weakness as another headwind to European earnings.


"The fundamentals are supportive of continued earnings recovery but there's a challenge from the currency," Mr Carr added.

Among individual stocks, shares in Danish biotech firm Genmab jumped more than 11 per cent after it announced positive topline results in its phase III Alcyone trial.

British sub-prime lender Provident Financial added to a recovery from its sharp falls earlier in the week, jumping 13.2 per cent.

Sunrise Communications gained 7.3 per cent after its second-quarter net income more than doubled and Berenberg raised the stock to a "buy".

Danish software firm Simcorp dropped 9.8 per cent after its second-quarter results missed expectations, with order intake down 22 per cent year-on-year.

"There's a risk that the tech sector could be a little over-owned," said Mr Carr, pointing to tech stocks consistently being an overweight in BAML's monthly fund manager surveys.

"And if we start to get negative results, in line with the theme that misses get punished more, I think we could see share price reactions being more severe."

The company earnings season in Europe was drawing to a close, with almost 90 per cent of MSCI Europe firms having reported. So far, 55 per cent have beaten forecasts and 39 per cent have missed.

By comparison, more than two-thirds of companies reporting in the United States topped expectations.