new to the thread early last week,played SBAS fri. at 6 9/16.thanks.
As far as your Macaroni I think Barrons mentioned it today in Marketplace.
DECEMBER 13, 1999
Tech Stocks (What Else?) Are the Rage of
Europe
By Leslie P. Norton
Much has been made of the widening chasm between the new and the
hidebound Asia, between New Japan and Old Japan, say, or between the
Korea Stock Exchange and Kosdaq. Yet the gap separating Old and New
Europe also has grown large. That was strikingly apparent last week when
Nokia surpassed the market cap of British Petroleum to become Europe's
largest company. (It also means Denver-based growth investor Janus Capital,
which has 5%-plus of Nokia's shares, now has more than $11 billion sewn up
in the Finnish cell-phone maker.)
Sure, Mannesmann, the German wireless outfit now under pursuit by
Vodafone AirTouch, was off its high for the week, but it's still up 133% this
year. And notwithstanding the euro's slide or the European Central Bank's
suggestion that it will raise interest rates at its next meeting, European tech
issues are on a stunning tear. So much for the millennium bug. Demand is
likely to come not just from Europe, but also from U.S. institutions fretful
about a peaking U.S. economic cycle and their huge tech exposure at home.
Dow Jones Global Indexes | Emerging Markets | Global Stock Markets
Unlike Japan, which has Softbank, Europe doesn't have a real Internet
bellwether. Internet issues are just 0.3% of the European market, versus
6.8% of the U.S. That may change, given the appetite for initial public
offerings of ISPs like Freenet.de, a unit of Mobilcom, and Terra Networks, a
unit of Telefonica d'Espana. Last week, Freeserve, the U.K. ISP, set a new
high. Publisher Reed Elsevier jumped on disclosing new Internet investments.
Other New Europe plays gained. Marconi, the communications equipment
provider that was formerly the defense contractor called GEC, also rose.
By 2010, tech and telecom issues will account for nearly 40% of the DJ
Eurostoxx index, predicts Peter Oppenheimer, HSBC Securities' chief
strategist. That's up from around 18% now. Oppenheimer analyzed the cash
flows of the index's tech and telecom members, then discounted them back.
Assuming a 30% premium to the wider market, such companies would
account for 37% of the market by 2010 -- a roughly similar weighting to the
U.S. At the current 40% premium, the proportion rises to 63%. That doesn't
include any impact from new entrants.
Among the stocks that shot higher this week were Arm Holdings of the U.K.,
which licenses its design for embedded processors to companies like Intel,
LSI Logic and Lucent. Arm has increased 23-fold since it was listed on the
London Stock Exchange and Nasdaq in April 1998. Arm and CMG, a
telecom supplier, climbed as they were added to the FTSE 100 index.
Arm's gain means it's now the largest position in Morgan Grenfell International
Select Equity, a mutual fund that's up 76% this year. (Deutsche Asset
Management, Morgan's parent, owns 10% of Arm.) Concedes Patrick
Deane, the fund's manager: "The link between balance-sheet assets and
profitability has been severed." Yet, Deane suggests, there is "sizable upside"
left in Arm. He sees licensing revenues growing 30% a year for the next five
years. But the real upside comes from the royalties, which Deane sees surging
55% a year, as forecasts of digital mobile-phone sales are revised upwards,
and new digital products such as palmtops, set-top boxes and smart cards are
introduced. Some 875 million Armbased units will be shipped by 2004,
yielding revenues of 300 million ($489 million), versus 42.3 million in 1998.
"Given the implicit high gross and operating margins, much of this turnover will
be turned immediately into cash," says Deane. Since Arm now trades at 21
times 2004 sales, Deane's investors hope so too.
The gains bemused even jaded observers like Nick Hiley, who sells European
stocks to U.S. institutions for Commerzbank. The "fever" for technology
stocks, Hiley observes, has now spread to content providers. Last week,
shares of German broadcaster ProSieben Media, controlled by media titan
Thomas Kirch, advanced after BskyB said it would buy 24% of KirchPayTV
of Germany. BskyB is 40% owned by Rupert Murdoch's News Corp. and
25% by France's Vivendi, which also owns half of French pay-TV outfit
Canal Plus.
Other gainers included auction companies like QXL.com, which is linking
Excite@Home customers to its European sites, and ricardo.de, the German
auctioneer. At 25 times 2000 sales, Ricardo still trades at a steep discount to
eBay, which it recently replaced as the auctioneer on T-Online, Deutsche
Telekom's Internet site.
And others connected to the new wireless Internet theme prospered. Ericsson
leaped after agreeing to create a joint venture with Microsoft and use a
Microsoft browser in some handsets. The pact initially bashed shares of
Psion, the hand-held-computer maker working with Ericsson, Nokia and
others to create a new operating system, called EPOC, for cell phones. But
Psion shares recovered from a 40% loss after Ericsson said it wouldn't
abandon EPOC.
Some Old Europe shares went along for the ride. The Ericsson pact initially
lifted shares of Investor AB, the big Swedish holding company controlled by
the Wallenberg family, but the gains evaporated. Investor owns just 3% of
Ericsson, but controls 22% through supervoting shares.
One of Investor's largest holders is Franklin Mutual Series funds. And David
Marcus, manager of Franklin Mutual European, is a little disappointed with
Investor this year, despite its 25% gain. "What's frustrating," says Marcus, "is
they haven't done enough to create value for the shareholder." Consider the
fact that this year, Investor agreed to sell its 28% stake in Scania. Then
Volvo, which is 15% owned by Investor, made a takeover bid for Scania,
creating Europe's largest truckmaker and Investor Volvo's second largest
owner. "That's disappointing -- you ought to get rid of it and move on," says
Marcus.
At 115 Swedish krona last week, Investor now trades at a steep discount to
its NAV of roughly Sk158. That discount ought to narrow as Investor
commits more capital to venture investments. Marcus is also pressing Investor
to spin out the following stakes: 15% in air carrier SAS, 13% of ball-bearing
maker SKF, and 14% of Electrolux. Marcus also notes that Sweden's
socialist government is finally expected to allow share buybacks this spring. It
ought to be noted, however, that investors have eagerly awaited this
legislation since 1992.
A strong performer in recent weeks has been Foreign & Colonial Emerging
Middle East, a closed-end fund that's up 35% since September, and 20%
since January 1. The fund has 27% of assets sewn up in Egypt, where,
emerging-markets specialist Auerbach Grayson observes, companies traded
limit-up repeatedly going into Ramadan, the Moslem holy days. The fund's
largest position is MobiNil, the wireless service provider reporting huge
subscriber increases. Its second largest is Migros, the Turkish retailer. Turkey
has also jumped of late on euphoria amid hopes that it will join the European
Union. Merrill Lynch Middle East/Africa is also up 15.8% since September
29, and 35.1% this year.
Are any bargains still left in Japan? Armin Lang, who steers Eaton Vance
Tax-Managed International Growth fund, is nibbling at consumer finance
companies. After news that Nichiei and Shohkoh Fund used strong-arm
collection tactics, Japan cut the maximum interest rate charged by these
lenders to 29% from 40%. Nichiei and Shokoh aside, many lenders don't
deserve the bad rap nor the stock price declines they suffered amid fears of
loan-rate caps, Lang maintains. GE Capital seems to feel equally sanguine
about the prospects of consumer lenders and is buying stakes in some. Loan
rates at companies like Acom and Promise are within acceptable levels,
declares Lang. At Y11,920 for Acom and Y6,270 for Promise last week,
both stocks sell at discounts to their growth rates, he adds. Acom is boosting
loan growth, cutting funding costs, and boosting cash flow, he adds.
johnsto |
