Very little reason for the US market to rally last week. But rally it did. (page 3 of 3)

Stora Enso confirmed these trends by reporting a pre tax profit of EUR 130m in line with consensus. Early cycle grade of fine paper had a particularly strong quarter and the management gave a brighter picture for North America with signs of advertising picking up after the war and materialising price increases.
This is exactly what we were waiting for and given Stora Enso's relatively larger exposure to early cycle grades and a larger domestic exposure in North America, the company should see the benefits earlier and in a greater magnitude than its competitor. Rising demand and stable to rising prices should lead to stronger results in the second half. In addition the stock trades on low valuation in both sector and historical terms, has high operational gearing and an ongoing share buy-back program. We maintain our buy.

JC Decaux (DEC FP; EUR 8.65) released 1Q sales slightly lower than expected (EUR 352.9m vs EUR 358.6m in the 1Q02) but were in line with company guidance given earlier on. The weaker USD and GBP against the EUR impacted the results adversely. Organic growth was driven by strong performance in the billboard and transport advertising business. Given the current geopolitical environment, the strong rebound in its transport advertising business was especially encouraging. On the other hand, street furniture sales were on the lower side declining 3.7%, but still in line with management's earlier guidance. Although the results were slightly lower than expected we believe the company with its unique business model has the potential to outperform once the economic environment turns more positive.

Aventis (AVE FP; EUR 46.50) released a 13% higher 1Q profit on the back of reduced SG&A and a lower tax rate. On the other hand, sales were slightly disappointing with exchange rates having a negative 12% impact. Nevertheless, EPS came in at EUR 0.61, exceeding expectations. The two main products, Allegra and Lovenox, are expected to accelerate in the US over the reminder of the year and management also reiterated its outlook for the full year expecting 2003 sales to increase 7-9% and EPS to increase 14-18%.

We reiterate our buy rating on the back of low valuations (around 30% discount to global peer group) and our belief that the company can deliver on its promises.

We took profit on SAP (SAP GY; EUR 96.00) last Friday (up 23% since the beginning of the year). Please note that we continue to like the company and especially its business model from a fundamental point of view. The technology sector shows the best YTD performance and given the still weak economic environment, we believe the sector is due for a correction. In addition, the share price ran nicely on the back of its 1Q earnings report and we believe the stock's upside is limited. The stock is trading at 26.5x and 23.9x PER 2003 and 2004 estimates, which is near the top of its trading range. Hence, we prefer to protect our profits and wait for lower levels to re-enter.

Where do we stand after another week of earnings? Most companies have managed so far to meet expectations. However these were often revised downward when many companies guided lower ahead of the earnings season. In addition, let's not forget the profit warning from Volkswagen (VOW GY; EUR 30.62) and Deutsche Bank (DBK GY; EUR 47.05) two weeks ago. Positive surprises were often the result of cost cutting and few companies managed to post show better than expected top-line growth. The top-line was also often impacted by adverse currency effect due to the stronger Euro.

We believe that for the rebound to show further sustainability we need to see a pick-up in economic growth. The ECB is meeting this week on Thursday. However the Council is likely to keep the rates on hold. We believe they would like to get more information on where the European economies stand and are also waiting for inflation to come down below the 2% target. Given the lower oil price, we could expect inflation to finally reach the point whereby the ECB would be inclined to cut rates in June.