Welcome to my nightmare

2006 is a four-letter word for France Telecom. Having sold the market on a 3 - 5% pro forma revenue growth story for 2005 back in the summer when they were [coincidentally] raising money to buy Amena, FT suddenly cut this back to "almost 3%" in November, and yesterday further scaled this back to "2 - 3%." For 2006 the expectation is 2%, though given recent history, I think the market may be inclined to take a very cautious view of this. My chief economist tells me EU25 CPI for 2006 is expected to be just under 2.2%. Unsurprisingly, the share price is trading down by 7.9% at this writing, with volume already pushing 5x the recent daily total. Moreover, almost every other company in the European sector is down well over 1% in sympathy (one notable exception being Iliad...).

The market may be inclined to view the second haircut in as many months as a credibility issue. I tend to think it's more a fundamental difficulty in forecasting rapidly eroding fundamentals across multiple markets in a very complex and large company. If so, this doesn't surprise me in the least, and this will not be the last case we see in 2006. The French market alone is enough to keep any company fully occupied. Free and Neuf Cegetel are both turning up the VoIP and video heat, and with the socialist Mayor of Paris (a potential Presidential hopeful) and Mr. Chirac now talking the virtues of fiber, you have to wonder how much of the domestic business plan has to be written in pencil. Never mind, three-quarters of analysts are still positive (we are not), with price targets on average 25% above the current share price (some as much as 50%). Plus ça change...