War and upcoming quaterly results to add to market volatility (page 3 of 3)

On the other side, telecom and technology are the only two sectors where there has been a fall in volatility this year.

Vodafone (VOD LN; GBP 119.5) announced that it also got control of Telecel after it had gained control of Libertel and Europolitan earlier on. Vodafone now has 94.4% of Telecel and can apply for a squeeze-out to the minorities. CSFB estimates that the impact of buying in the minorities of Libertel, Europolitan and Telecel could add 1-2% to Vodafone's EPS for the year to March 2004. However, Vodafone has still to make an offer for its remaining quoted affiliate in Europe, Panafon. We remain positive and we would advise investors to take partial profit when the stock is approaches GBP 1.25 -1.27, which is around 5% away from current levels.

SAP (SAP GY; EUR 74.89) went through a volatile week. After the stock came under pressure at the beginning of the week as an independent survey showed that more than half of the companies using its software did not achieve a positive return on their investment (a report which SAP referred to as unrepresentative and unscientific). The stock jumped over 9% on news that they will work with China's Neusoft Group to tap into the fast growing market.

Peoplesoft pre-announced their 1Q results last Thursday night. License revenue declined 36-40%yoy and the numbers confirmed that what results of Oracle and some smaller companies have already shown is more a market than a company specific issue. Given that SAP's multiple tends to expand and contract with upgrades and downgrades and CSFB estimates that SAP's 1Q license estimates of EUR 280-300m would lead to a full year consensus EPS falling 10-15%, the current 21.5x 03 multiple will also contract to closer to 17-18x. Therefore, we believe that the stock will come under pressure in the short term. Please note SAP is due to report 1Q figures on 17 April.

In the current environment, we would like to reiterate two of our themes: dividend play and energy. A stock, which nicely combines the two, is ENI (ENI IM, EUR 13.391). CSFB reiterated its positive view on the stock and forecasts a 33% upside to their Economic Value Added derived fair value. After ENI reported 4Q results, which were in line with CSFB's expectations, the stock relatively underperformed as the gas & power division slightly disappointed. However, part of the margin compression in this division stems from ENI's decision to renegotiate distribution contracts in 2002, which is a smart move comparing it to British Gas, which tried to maintain high margins for as long as possible until the regulators stepped in. We also continue to like ENI's strategy of redeploying capital from low into high returning businesses, which are mainly upstream. The 6% production target was extended a further year to 2006 and alongside TotalFina (FP FP; EUR 124.5) is the highest volume growth target of any of the major integrateds. In addition, ENI comes with a dividend yield of over 5.5%.