Strength of telecoms fuels Eircom share price gains

Eircom shares rose a further seven per cent yesterday, bringing the gains over the last two days to more than 10 per cent.

General strength in the telecoms sector following the success of Vodafone Airtouch's bid for Mannesmann and takeover speculation helped drive the share price which hit a high of €4.82 at one point in London before closing at €4.70 in Dublin, a gain of 30 cents on the day.

At yesterday's closing price, the shares are more than 20 per cent above their flotation price of €3.90.

According to BCP analyst, Mr Eamon Leonard, the current price provides a good opportunity for the thousands of small investors who still hold stock to make a profit, even though it means foregoing the 4 per cent loyalty bonus in additional shares which will be given out after the first anniversary of the flotation. "The price has been in the doldrums for so long that this represents a good opportunity to sell," he said. Holding on to the stock exposes shareholders to the risk that the stakes held by KPN and Telia could end up on the market rather than being placed with an institutional buyer, something that could depress the share price again. However, some analysts believe the stock may have further to go. ABN AMRO recently put a sum-of-the-parts valuation of €4.90 on the company, arguing that the price paid by BT for Esat was supportive of Eircom's valuation while corporate activity should also underpin the price. The broker says Telia may choose to hold on to its 14 per cent stake in Eircom while it believes there could be a number of possible buyers for KPN's 21 per cent shareholding.

Those regarded as potential buyers for all or part of Eircom include Deutsche Telekom and France Telecom and US operators such as SBC and Bell Atlantic.

But if Eircom shares are on the rise, there was little respite for the battered banking sector, with both AIB and Bank of Ireland shares remaining in the doldrums.

Some strength in the sector internationally helped AIB to add five cents to €8.82 yesterday, while Bank of Ireland gained 10 cents to €6.50. However, both remain significantly undervalued relative to their European peers.

"The banks are still trying to find a way out of the weak trading range that they're in," one dealer noted.

ABN banking analyst, Mr Eamonn Hughes, said that he expected the sector to trade sideways over the rest of the first quarter as uncertainty about bond yields and the impact of the Internet take their toll.

"However, we believe that we are close enough to the top of the bond cycle to make it worth bottom fishing with a view to trends in the second half of 2000."