European telcos: mixed signals

Issues of disclosure, liquidity, high debt levels and low equity valuations have combined to make the telecoms sector as volatile in the first half of this year as it was last year. But will this continue throughout the second half of this year and more importantly what should investors look out for?

Sarah Martin
Lehman Brothers

Modestly overweight (underweight DT & FT)
The one thing that is certain about the telco sector is that it will remain volatile, with sentiment swinging 180 degrees in short order. Currently, sentiment is against the sector for the following reasons: firstly, generally poor Q1 results and earnings downgrades, particularly for wireless operations; next, sharply declining equity prices, resulting largely from the weakened earnings outlook; thirdly, contagion