Telecoms giant Telefonica cut its 2004 core profit targets on Thursday after cut-throat competition in its mobile business in Spain and Latin America caused it to miss nine-month forecasts. Shares in the Spanish speaking world's largest phone company fell after it posted a 5 percent rise in nine month net profit to 2.12 billion euros ($2.73 billion), missing even the lowest forecast in a Reuters poll of 10 analysts.
The weak performance contrasted with European rival Deutsche Telekom's bumper results and Telefonica further disappointed investors by cutting its full-year EBITDA growth forecast to between 5 and 7 percent, from 7 to 10 percent.
"There were some negative surprises, particularly in Latin America, where Telefonica is making a huge effort to grow in a competitive environment, sacrificing margins in the short term," said Ricardo Pimentel Seara, telecoms analyst at BPI, who maintains his "buy" recommendation on the stock.
Analysts said the guidance cut was largely expected after mobile unit Telefonica Moviles lowered its 2004 earnings before interest, tax, depreciation and amortisation (EBITDA) forecast on Wednesday, blaming price cuts to win market share in Latin America and tough competition from Vodafone in Spain.
"The market reacts negatively whenever there is a target cut...In the short run some investors may take their money from Telefonica and put it into Deutsche Telekom," said Seara, adding that short-term weakness could be a buying opportunity. At 1219 GMT, Telefonica shares were down 1.9 percent to 12.92 euros, under-performing European peers.
Deutsche Telekom - which is neck and neck with Telefonica as Europe's largest telecoms group by market capitalisation - jumped 4.8 percent as it unveiled a bigger-than-expected dividend and robust mobile phone growth in the US and British markets.