Sold on telecoms

Sell-side analysts no better than salesmen? Pshaw! Analysts covering FTSE 100 companies may be 90% positive/neutral, but hard-nosed European telecom analysts can confidently hold their heads high, proud in the knowledge that they are only positive/neutral 87% of the time. At least according to my digging on recommendations as reported by Bloomberg.

I don't want to mix business with pleasure, so I won't go into the specifics of my coverage, but suffice to say that 63% of my recommendations are neutral and 37% negative. I have no outperform or buy recommendations (our ratings are made against the wider market, not against the sector - if the policy was to make recommendations against the sector then things would look a bit different). Astute readers of this bloglet may have picked up on a nuance of pessimism I have towards the sector, and there's your proof.

I guess I would have been fired from somewhere else long ago, but I'd like to think that our clients like hearing it like it is, and that this is appreciated by my management. Anyway, I guess the performance numbers tell the real story. Here's the STOXX Telecom industry group's ranked relative performance against the STOXX 600 18 industry groups (1 being highest, 18 being lowest).

One month - 18
Three months - 18
Six months - 18
Year to date - 18
Two years - 16
Five years - 15

This probably gives some sense of the analyst fatigue which I assume many fund managers must feel. Given a poor performance track record, and an increasingly brutal set of competitive and technological risk factors, where can this overwhelming sense of positivity come from? I certainly don't have a clue, but hope definitely springs eternal. One other thing I notice from perusing Bloomberg's data is that average price targets on Vodafone, France Telecom, Deutsche Telekom, Telefonica and Telecom Italia (i.e., the five biggest constituents in the sector, which generate the highest trading volumes, and therefore commissions) are 20% above current trading levels.

Here's the data, as compiled from Bloomberg:

Positive/Neutral/Negative splits (%)

France Telecom 74/18/8
Vodafone 67/28/5
Telenor 62/29/9
OTE 57/43/0
Deutsche Telekom 56/36/8
Telefonica 55/37/8
Telekom Austria 54/46/0
TeliaSonera 44/36/20
Portugal Telecom 37/47/16
Tele2 36/43/21
Telecom Italia 34/41/25
TDC 30/50/20
BT Group 27/38/35
Eircom 25/75/0
Belgacom 22/50/28
KPN 56/36/8
Swisscom 5/57/38