Advertisement
UK markets closed
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • HANG SENG

    16,541.42
    +148.58 (+0.91%)
     
  • CRUDE OIL

    82.99
    +1.64 (+2.02%)
     
  • GOLD FUTURES

    2,240.70
    +28.00 (+1.27%)
     
  • DOW

    39,844.58
    +84.50 (+0.21%)
     
  • Bitcoin GBP

    56,133.70
    +1,707.48 (+3.14%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • NASDAQ Composite

    16,394.98
    -4.54 (-0.03%)
     
  • UK FTSE All Share

    4,338.05
    +12.12 (+0.28%)
     

GRAPHIC-European tech shares disconnect from earnings as M&A hopes build

* Tech shares jump even as earnings expectations slump

* Share (LSE: SHRE.L - news) rally boosted by M&A hopes, weaker euro

* Chart on tech shares and EPS: http://bit.ly/2a1Z9bk

By Atul Prakash

LONDON, July 26 (Reuters) - European technology shares hit their highest level this year on Tuesday, disconnecting from earnings downgrades and riding on hopes of merger activity and improved competitiveness from a weaker euro.

The STOXX Europe 600 Technology index has rallied nearly 20 percent from a trough hit after Britain's June 23 vote to leave the European Union rattled European markets.

SoftBank's move last week to acquire Britain's most valuable tech firm ARM for $32 billion has spurred hopes of more deal making in the sector, lifting valuations even as expectations for earnings growth have remained depressed.

ADVERTISEMENT

The sector also stands to benefit from a more than 5 percent drop in the euro against the dollar since early May, as many European tech companies have costs in euros but earn revenues in the U.S (Other OTC: UBGXF - news) . currency, analysts said.

The sector trades at 17.8 times forward earnings, a 10 percent premium over its average over the past decade, according to Thomson Reuters (Dusseldorf: TOC.DU - news) data.

Earnings expectations for the sector have come off since the start of the year, with analysts now forecasting that earnings per share will fall by 4 percent for 2016. In January they were expected to rise 17 percent. http://bit.ly/2a1Z9bk

That leads some analysts to predict shares are close to peaking.

"It seems that we are trading near the peak levels in the sector," said Veysel Taze, senior analyst at Oddo Seydler Bank.

Tech companies that serve the automobile and other consumer-related sectors should do well, but those dependent on growth of mobile devices are likely to struggle as smartphone sales slow, Taze said.

(Editing by Vikram Subhedar and Susan Fenton)