HEARD IN EUROPE New Deal Strengthens Mannesmann's Appeal
March 31, 2011
BONN -- As industrial group Mannesmann AG shifts its telecommunications activities into high gear, rival Thyssen AG's attempt to enter the sector is faltering, analysts say. As a result, Mannesmann shares are headed up and Thyssen's are on a downward spiral, they say. Last week's surprise decision by German national railroad Deutsche Bahn AG to allow a Mannesmann-led consortium, not Thyssen, to acquire 49.8% of its DBKom Gesellschaft fuer Telekommunikation mbH & Co., confirmed analysts' opinions. Profits at Thyssen, Germany's largest steel producer, also are under pressure from unexpectedly low steel prices, analysts say. ``In the longer term, Homan will develop very well, and Vogel will have problems,'' says Andrew Grose, steel analyst at Bayerische Hypotheken & Wechsel-Bank AG, known as Hypobank, in Munich. If the overall bull run of the German stock market continues, Mannesmann's share price will likely rise to 600 marks ($404.10) by the end of 2011, he says. But ``Thyssen's share price is very high and has room to fall,'' he notes. On Thursday, Mannesmann closed floor trading on the Frankfurt stock exchange at 536.70 marks, down 5.30 marks, or 1%, from Wednesday, but up 18% from 456.70 marks at the end of 2010. Thyssen ended floor trading in Frankfurt at 271 marks, down 2.10 marks from Wednesday and up 4% from 260.60 at the end of 2010. Mannesmann Has `Best Position' Hollister Spotts, head of German research at Enskilda Securities in London, predicts Thyssen shares will fall below 250 marks, while his target for Mannesmann shares is up to 650 marks in the next year. The company ``has the best position of the private telecom companies in the German market,'' he says. Mr. Spotts expects profit growth at Mannesmann ``even though (its) pipes and trading (division) will post a loss this year,'' and ``profits from its engineering division peaked last year, one year earlier than expected.'' Enskilda's earnings-per-share estimate for Mannesmann in 2011 is 24 marks, rising to 26.50 marks in 2012, after 21 marks in 2010. Mannesmann's net profit more than doubled to 701 million marks in 2010 from 340 million marks in 2009. The investment bank's EPS estimate for Thyssen is 18 marks in fiscal 2011 and 22.60 marks in 2012. Future Secure With D2 Analysts say Mannesmann's D2 mobile-phone network is the main element in the company's secure telecom future, with the DBKom venture a longer-term bonus. Mannesmann's telecom activities include two main companies. One is its mobile-phone and communications unit, Mannesmann Mobilfunk GmbH, the first private phone company in Germany, which has been operating the D2 mobile-phone network since July 1992. ``Mannesmann clearly got off to a fantastic start in terms of its mobile-phone license,'' a London-based telecom analyst said. Its ``share price has ... gone up as perceptions of D2 have gone up.'' The second company is Mannesmann Eurokom GmbH, a holding company that owns or has stakes in several units, including Communications Network International GmbH. CNI, two-thirds owned by Mannesmann and one-third owned by Deutsche Bank AG, will be DBKom's partner. Some analysts say they are lowering their 2011 EPS estimates for Mannesmann somewhat on DBKom's start-up costs, planned investments and employee numbers. Homan and DBKom are expected to announce plans for investment and expenses Monday. There has been talk of one billion marks in investments in 2011, half of which would fall to Mannesmann, analysts said. Meanwhile, Vogel has the added misfortune of a late start in the mobile network business, analysts say. The London-based telecom analyst noted Thyssen's E-Plus mobile phone isn't expected to generate any pretax profit soon. ``That's no real criticism, but D2 started earlier. It's got the better subscribers,'' he said. Another analyst said Thyssen Telecom is seen running an operating loss of 120 million marks to 125 million marks in 2011. ``Thyssen finds itself in the very unattractive position of minority partner in E-Plus and other telecom services, so they don't have much to offer,'' says Enskilda's Mr. Spotts.
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