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StockBeat: Ericsson, Imperial Say Those Precious 3 Little Words

By Geoffrey Smith -- The sweetest three words in a stock investor’s ear right now? ‘No material impact.’

Sweet, because rare. The morning run of regulatory news releases has become a grimly repetitive series of downgrades and profit warnings, but two big names bucked the trend on Tuesday. albeit for different reasons.

Swedish telecoms networking equipment maker Ericsson (ST:ERICb) rose 2.9% to its highest in over a month after chief executive Borje Ekholm gave an upbeat assessment of the company’s outlook.  At the end of the Stoxx 600 index’s worst quarter in over a decade, Ericsson (BS:ERICAs) stock is a clear outperformer, having lost only 1.0%.

"So far, we have not seen any material impact on our business, but we are closely following the developments in society," Ekholm said in a video link uploaded to the company’s website, replacing the usual address to shareholders at an annual meeting curtailed because of Covid-19 fears.

Ericsson's outlook has brightened considerably as U.S. sanctions against competitor Huawei have raised the risk of doing business with Ericsson’s biggest competitor.

“Last year we talked about switching on 5G globally. Today, we can say that we have succeeded,” Ekholm said. “Right now we have 86 commercial 5G agreements and 27 live networks in 4 continents. Ericsson is leading the 5G development. I see no one in front of us.”

He added that the 5G market is growing faster than most analysts have expected and said Ericsson is “well positioned” to capture this growth – a nice consolation for shareholders missing out on one of the year’s best smorgasbords.

Ericsson’s gain is carriers’ pain, of course. A number have grumbled at higher cost and less choice as a result of government action to limit Huawei’s presence in the new industry standard. But even gift-wrapped opportunities need to be actively exploited, and Ericsson has done just that, while its big European rival Nokia (HE:NOKIA) has stumbled from one mishap to the next. Nokia stock is down 14% year-to-date and 45% over the last 12 months.

Elsewhere in the happy lands of ‘no material impact’. U.K.-based tobacco giant Imperial Brands PLC (LON:IMB) stock soared 13% after it said current trading was “in line with expectations.”  Looks like nobody chose the wrong week to give up smoking. The FTSE 100 rose a more modest 1.9%.

Amid a constant drumbeat of downgrades and profit warnings, Imperial’s statement also cheered investors by completely leaving out the words “suspend” and “dividend”, on a day that the 72 pence final payout was due for distribution.

In a world where Big Oil’s revenues are collapsing and the breweries and distillers are suffering from bar closures the world over, investors can be relieved to see there’s still one vice sector that can be relied on.

Imperial also said it had agreed a new 3.5 billion-pound revolving credit facility with 20 banks. That replaces an earlier 3 billion-pound credit line – further reassurance for investors amid pervasive fears of strained liquidity.

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