Goldman cautious on telecoms
Cuts portfolio weighting in equipment makers
By Gareth Vaughan, FTMarketWatch 12:16:00 PM GMT Nov 1, 2000
LONDON (FTMW) -- Goldman Sachs said on Wednesday it was cutting the weighting of telecoms equipment makers in its model portfolio and slightly raising the weighting of telecoms operators, although it said there were risks on the horizon for both groups. Regional market
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Goldman Sachs analyst Mike Young told FTMarketWatch that the investment bank was cutting its portfolio weighting on equipment makers such as Ericsson [US:ERICY], Nokia [US:NOK] and Alcatel [FR:013000] [US:ALA] to 110 basis points underweight from 100 basis points overweight.
Young said Goldman's portfolio weighting on operators such as Vodafone [UK:VOD] [US:VOD] and Telefonica [US:TEF] was being lifted to 130 basis points underweight from 340 basis points underweight.
"The key point we're making is that it seems a bit odd to know your major client's in deep financial difficulty and assume that you're okay," Young said.
Major European telecoms operators such as Deutsche Telekom [DE:555750] [US:DT], British Telecom and KPN have seen their debt balloon this year due to the high cost of next-generation mobile phone licences and acquisitions.
Telekom now has debt of €62.1 billion, BT [UK:BTA] [US:BTY] roughly £28 billion and KPN [US:KPN] €25.4 billion.
Investment contradiction
Goldman said its telecoms analysts forecast single-digit increases in capex, or investment, from operators in 2001, while the equipment makers report order books up by 20 percent to 30 percent.
"The major operators in both the U.S. and Europe don't expect much if any increase in capex between this year and next year and perhaps not next year and the following year either," Young said.
Young added that the risk is that both the equipment makers and the operators are wrong, meaning that the operators may have to spend more than they plan to, but still might not match what the equipment makers are expecting.
Goldman added that consensus forecasts for mobile phone sales next year have already been cut to 550 million from 600 million and that with global economic growth prospects falling, there's real risk of a further cut in these estimates.
The investment bank said it's added Telecom Italia Mobile, which is 60 percent owned by Telecom Italia [US:TI], to its portfolio and has increased its weighting in Telefonica, which along with Vodafone remains its favoured stock among operators.
Separately, Goldman's cut its portfolio weightings in Ericsson, Nokia and Alcatel |
