RPT-UPDATE 4-Telefonica FY net helps shares, but doubts persist

(Repeats to say 1.3 percent, instead of 1.3 pence in fifth
bullet)

* Maintains 2010 EPS, DPS targets

* 2010 consolidated core earnings seen up 1-3 pct

* Group tweaks accounting basis to reach 2010 targets

* 2009 earnings healthy, revs ahead of expectations

* Shares up 1.3 percent to 17.12 euros

(Adds fund manager comment, updates shares)

By Elisabeth O’Leary

MADRID, Feb 26 (BestGrowthStock) – Spain’s Telefonica (TEF.MC: )
broadly met market forecasts for full-year profit on Friday, but
results did not dispel doubts about the feasibility of targets,
weakness in some units and the chance of a costly merger.

The 2009 results showed Europe’s No. 2 telecom by market
capitalisation still able to offset a tough home market in Spain
— where one in five is out of work — with healthier operations
in Latin America.

Its shares were up 1.3 percent to 17.12 euros at 1203 GMT,
outpacing the DJ Stoxx European telecoms sector (.SXKP: ), and
recovering from a slump in which fears of a merger with Telecom
Italia (TLIT.MI: ) have weighed.

A fund manager argued that in a weak world economy,
Telefonica was a clear dividend play. [ID:nLDE6181GV]

“These are very solid results and although growth is
limited, the point is that they are dependable and they are
coping well in the circumstances,” said Juan Bertran, partner at
Cartesio Inversiones, a fund with 285 million euros ($384
million) under management.

“As an investor I’m sure of my return, which at the moment
(around 8 percent dividend yield) is far better than, say, that
of a 5-year German bond (about 2 percent),” Bertran said. “There
are risks, of course, but for the moment they are delivering on
the issues I care most about.”

But many analysts question how feasible the group’s future
targets are, and highlighted the fact that Telefonica had set
itself a less demanding task for 2010 by stripping out
extraordinary items which flattered earnings in 2009.

Telefonica set the basis for revenue growth roughly 300
million euros below the reported 2009 figure.

MODEST FORECASTS

Telefonica said 2010 consolidated operating income before
depreciation and amortisation (OIBDA) should rise 1-3 percent,
while consolidated revenue should rise 1-4 percent.

“We still see weak underlying trends, with Spain under
pressure, Latin America in a notable deceleration path and
Europe still not delivering substantial growth,” said Javier
Borrachero, analyst at Kepler in Madrid.

Telefonica however maintained its earnings per share and
dividend per share targets for 2010 at 2.10 and 1.40 euros
respectively, as well as dividend targets to 2012.

“Revenue guidance in true underlying terms is more like
-2.5-0.5 percent, with (the) recent track record suggesting
something closer to the lower end. Investors should be very
sceptical,” said Georgios Ierodiaconou, analyst at ING in
London.

He said he expected shares should rise on relief that the
2009 performance was not worse.

RELIEF FOR WEAK SHARES

Net profit in 2009 rose 2.4 percent to 7.78 billion euros
($10.5 billion), while OIBDA fell 1.4 percent and revenue was
down 2.1 percent, in line with a Reuters poll. [ID:nLDE61I15I]

One buy-side analyst said the market was likely to pass off
any change in targets, given that few investors had been
expecting Telefonica to reach the previous hurdles anyway and
most are more concerned about merger risk.

Dragging on Telefonica shares have been fears that Chairman
Cesar Alierta might make a costly, politically complex deal with
Telecom Italia from which it may be hard to extract synergies.

That perceived possibility may now recede amid a money
laundering probe at its Italian counterpart. [ID:nLDE61O086]

But that, on top of fears about Spain’s economy, has
depressed the stock by 13 percent so far this year.

Home market Spain, which accounts for 30 percent of group
revenues, is in the grip of a recession which most economists
predict will only abate painfully and slowly, keeping
Telefonica’s operations under pressure.

Earlier on Friday, Belgium’s main telecom Belgacom (BCOM.BR: )
reported better-than-expected earnings. [ID:nLDE61N193]

European peer Deutsche Telekom (DTEGn.DE: ) on Thursday
announced a slight decline in core profit target for this year
while France Telecom (FTE.PA: ) predicted stable revenues and
confirmed its 2010 targets. [ID:nLDE61O0TH].

Stock Market News

(Additional reporting by Tracy Rucinski and Sonya Dowsett;
Editing by David Cowell, Jason Neely and Sharon Lindores)
($1=.7421 Euro)

RPT-UPDATE 4-Telefonica FY net helps shares, but doubts persist