Europe tech stocks ripe for rebound after Nasdaq-led rout

Reuters - UK Focus

* No tech bubble seen in Europe since fewer big web firms

* 180 U.S. stocks trade at more than 30x expected earnings

* Fund managers forced to dump sector globally

By Blaise Robinson

PARIS, April 25 (Reuters) - European technology stocks areripe for a rebound as investors look for bargains following asharp sell-off in pricey U.S. tech and internet firms thatspilled over into Europe and Asia.

Fund managers are starting to look at European tech companiessuch as Germany's SAP (NYSE: SAP - news) and Sweden's Ericsson (Xetra: ERCA.DE - news), which slipped alongside Wall Street peers despitemuch cheaper valuation levels.

Fears that sky-high valuations for Internet companies likeFacebook (NasdaqGS: FB - news) and Netflix (NasdaqGS: NFLX - news) were overdone prompted a 10percent fall between early March and mid-April in New York (Frankfurt: HX6.F - news) 'stech-heavy Nasdaq Composite index.

While the correction on Nasdaq's so-called 'momentum stocks'might not be over, analysts see good buying opportunities inEurope, where the tech sector now trades at a cheaper valuationratio than other major sectors. These include chemicals,construction and materials, industrials and travel and leisure.

"The Nasdaq was more than due for a correction. It traded ata price-to-earnings ratio of about 30. The S&P in comparison,trades at 17 times earnings, and I'm not even talking aboutEurope," said Arnaud Scarpaci, fund manager at Montaigne Capitalin Paris.

"People quickly pulled the trigger and there was not muchdiscrimination between very expensive names in the U.S. andfairly priced European techs."

Europe is home to fewer large listed technology companiesthan the United States and does not have major publicly tradedconsumer Internet companies in social media or online retail.

Its tech index includes names like fallen mobile phone makerNokia (Stockholm: NOKI-SEK.ST - news) , which recently closed the sale of its handsetdivision to Microsoft (Berlin: MSF.BE - news) , chip maker STMicroelectronics (Frankfurt: SGM.F - news), and telecom gear maker Alcatel (Paris: FR0000130007 - news) -Lucent.


Even after the recent correction, nearly 180 stocks listedon the Nasdaq trade at more than 30 times expected earnings in2015. In contrast, European tech stocks trade at an averageprice-to-earnings ratio (P/E) of 16.7 for expected profits in2015, according to Thomson Reuters (Frankfurt: TOC.F - news) data.

Video: Why we're not in tech bubble 2.0 - Silicon Roundabout


Chart: Europe's most expensive tech stocks

Chart: Most expensive U.S. tech stocks

Among the big U.S. momentum stocks, social media groupFacebook trades at a 2015 P/E of 33, e-commerce giant Amazon at 80 and streaming video subscription service providerNetflix at 51.

The most expensive European tech stock is British chipmakerARM, trading at 32 times 2015 earnings, while big namessuch as SAP, Ericsson and ASML trade at 15.4, 13.6 and15.7 times their projected earnings for 2015.

The huge gap between U.S. and European tech stock prices isalso visible in other valuation ratios such as price-to-book andprice-to-sales measures.

While Facebook trades at a price-to-sales ratio of 19.8 andTwitter (NYSE: TWTR - news) at 39.73, ASML trades at 5.2 times sales, SAP (Berlin: SAP.BE - news)at 4.2 times and Alcatel-Lucent at 0.6 times.

The STOXX Europe 600 technology sector index hasnevertheless tumbled 7 percent during the Nasdaq-led selloff,twice as much as the overall European market, and almost as muchas the Nasdaq's 9.8 percent slide.


"A number of European tech stocks have been excessively hitin the sell-off, and this is now an opportunity for stockpickers to have a good look at each company's fundamentals andlook for value on a stock-by-stock basis," said JeanneAsseraf-Bitton, head of global cross-asset research at LyxorAsset Management, which has $110 billion euros under management.

Wall Street's fall was accelerated by the record level ofequity leverage used by hedge funds, with margin debt - equitiesbought with borrowed money - on the NYSE market totalling around$465 billion at the end of February.

The pull-back quickly morphed into a full-blown correctionas investors faced with paying back the debt on top of taking aloss scrambled to sell positions on momentum stocks, with aripple effect on tech stocks globally.

"The drop in European tech shares was mostly part of aknee-jerk reaction hitting all tech stocks around the world. Inthe 'risk-off' move, managers of global tech funds were facedwith redemptions, and they had to sell names across the boardregardless of valuation levels," said Roland Kaloyan, head ofEuropean equity strategy at Societe Generale (Paris: FR0000130809 - news) .

"There had been no such thing as a bubble in the Europeantech sector, and there's just no big internet names in theregion, which makes a big difference between the two markets.The U.S. and European tech sectors are very different bynature."

(Charts by Vikram Subhedar; Editing by Catherine Evans)

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