UPDATE 3-Spanish weakness in focus in Telefonica results

* 9-month net profit 8.84 bln euros vs forecast 9.19 bln

* Revenue up 6 pct at 44.28 bln euros in line with forecasts

* Closely-watched Spanish unit still weak in Q3

* Reiterates targets to 2012

* Shares fall 1.4

(Adds background, analysts comment, updates shares)

By Elisabeth O’Leary

MADRID, Nov 11 (BestGrowthStock) – Spanish telecoms group Telefonica
(TEF.MC: ) reported lower-than-expected nine-month net profit on
Thursday, with a one-off gain from the revaluation of Brazilian
unit Vivo helping to mask a lacklustre performance in Spain.

Analysts focused on Telefonica’s home turf where a sluggish
economy and 20 percent unemployment are keeping a lid on revenue
growth despite some market talk of a change in trend last
quarter. [ID:nLDE6AA0IG]

Shares in the company were down 1.4 percent at 18.055 euros
by 0937 GMT, when the STOXX Europe 600 telecoms sector index
(.SXKP: ) was down 0.6 percent.

Net profit for the nine months to end-September rose 65.6
percent to 8.84 billion euros, below the 72 percent rise
expected by analysts, on revenue up 6 percent to 44.28 billion
euros which was in line with expectations.

The performance of the euro zone’s largest telecom company
was skewed by its previously announced decision to revalue Vivo
following its purchase of Portugal Telecom’s (PTC.LS: ) stake in
Brazil’s biggest cellphone operator, adding 3.5 billion euros to
group net profit. [ID:nLDE69020F]

Revenues in Latin America, which now account for over 40
percent of the group’s total, rose 10.7 percent in the first
nine months of the year, or 6.9 percent in organic terms, while
European revenue outside Spain was up 11.8 percent.

LATIN AMERICA DRIVES GAINS

Telefonica Chairman Cesar Alierta has ploughed more money
into still-booming Latin America to offset slower growth in
markets such as home base Spain.

Revenue at Telefonica Espana, which still accounts for 30
percent of the group, fell 3.6 percent in the third quarter
after a 3.2 percent drop in the second.

“Vodafone (VOD.L: ) gave extremely poor results from Spain
earlier this week. These are not as bad as that, and not as bad
as last year but still, it’s very slow to recover,” said Kevin
Yates, analyst at RBS in London.

Vodafone posted an 8 pct fall in revenue in Spain in the
first half, and a 16 pct fall in EBITDA, citing a challenging
economic and competitive environment. [ID:nLDE6A70SZ]

Elsewhere in Europe, analysts highlighted a particularly
strong performance in Britain, where Telefonica’s 02 unit was
“the best performer in the market” according to Citi analysts,
with service revenues up 6.3 percent year-on-year in the third
quarter versus 5.2 percent at Vodafone.

Telefonica, which will hold a conference call at 1500 GMT,
also reiterated its dividend and earnings targets until 2012,
which analysts said inspired confidence.

Debt levels soared 10.95 billion euros to 54.5 billion euros
in the third quarter because of the Vivo buy and other one-offs,
although that did not raise eyebrows.

“Overall weak results, especially in Spain, but no reason to
doubt Telefonica’s ability to deleverage in 2011 by enough to
avoid a downgrade of it’s A- rating” said Societe Generale TMT
credit analyst Juliano Hiroshi Torii.
(Editing by Greg Mahlich and Hans Peters)
($1=.7281 euros)

UPDATE 3-Spanish weakness in focus in Telefonica results