Sector movers: Vodafone paces gains in Mobile telecoms on merger speculation

HSBC and Wood Group sent their respective sectors lower on Tuesday, weighing on the entire Footsie.

Europe´s largest lender, HSBC, missed analysts' fourth quarter profit estimates as both revenues and operating costs came in below forecasts.

Adjusted pre-tax profits jumped 39% to reach $2.62bn (consensus: $3.78bn) as adjusted revenues slipped 3% to $11bn (consensus: $12.4bn).

Operating costs grew 3% to $8.4bn (consensus: $8.3bn).

In parallel, Wood Group said full-year 2016 profits sank amid challenging conditions in its core Oil & Gas market - describing the pricing environment as competitive - and said it remained cautious about the near-term outlook.

Vodafone on the other hand got a boost from continued speculation it would soon finalise a deal to merge its Indian operations with those of Idea Cellular, following recent confirmation from Vodafone that talks were being held.

An announcement regarding the mega merger was likely within a month, Press Trust of India reported on 20 February citing sources.

"The companies are likely to announce a definitive signing agreement by February 24-25," one source said.

"They are almost ready to sign the agreement and should not take more than a month to announce it," another said.

The report was considered credible by analysts at JP Morgan, whoe believed it would reduce the telecoms firms leverage by a "substantial" €10.0bn and "significantly" de-risk Vodafone's returns profile by removing future Indian funding needs.

It might also afford Vodafone $9.0bn in synergies, JP Morgan´s Akhil Dattani said in a research report sent to clients.

"Increasing our Indian 5.5x EV/EBITDA multiple to Idea’s 8.7x (+57% YTD) would imply €5bn of equity upside – equivalent to 8% of Vodafone’s market cap," he said.

Shares in the main Oil & Gas producers were also helping to offset weakness in HSBC and Wood Group, on the back of supportive broker commentary.

As regards Tullow Oil, analyst Charlie Sharp at Canaccord Genuity upgraded his recommendation on the stock from 'sell' to 'hold' and his target price from 265p to 275p.

In Sharp's opinion, financial markets had already discounted a long-run price for crude oil of $65.0 a barrel but after the recent share price correction justified an upgrade from 'sell' to 'hold'.

If the price of oil fell to $55.0 per barrel from 2018 the broker's central value for Tullow would drop to 148.0p per share and at $75.0 it would rise to 401.0p.

Meanwhile, Royal Dutch Shell rose as Barclays reiterated its recommendation to 'overweight' as Barclays and Citi opted to do the same with their own 'overweight' and 'buy' recommendations, respectively.

Top performing sectors so far today

Mobile Telecommunications 4,517.80 +1.59%
Oil & Gas Producers 7,828.60 +1.54%
Construction & Materials 6,849.91 +1.16%
Software & Computer Services 1,912.79 +0.93%
Automobiles & Parts 8,134.13 +0.67%

Bottom performing sectors so far today
Banks 4,321.35 -3.86%
Oil Equipment, Services & Distribution 15,066.71 -3.52%
Food & Drug Retailers 3,069.10 -1.11%
Health Care Equipment & Services 7,305.30 -0.80%
Mining 16,983.95 -0.59%