Bloomberg:
While European countries slide deeper into debt, the region’s companies are paying off creditors and boosting profits at the fastest rate in seven years.
Liabilities as a percentage of earnings in the benchmark Stoxx Europe 600 Index dropped 22 percent last quarter, the most since 2003, according to data compiled by Bloomberg. Analysts say annual profit growth in Europe will average 46 percent in 2010 and 2011, more than at any time in the previous seven years. The projected income would push valuations down to the lowest levels on record excluding the three months after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, the data show.
While debt has fallen for Europe’s companies, government liabilities as a proportion of gross domestic product climbed, partly due to the cost of bailing out banks. European Union government debt reached 77.5 percent of GDP this year from 58.5 percent in 2007, according to data from the IMF. The ratio will reach 82 percent in 2012, IMF data show.
At the same time, the proportion of debt to shareholders’ equity in the Stoxx 600 Banks Index dropped to 6.9 times last week from 16 in September 2007, according to data compiled by Bloomberg.
For now, corporate debt is the safest ever relative to governments, according to the credit-default swaps market. A Markit Group Ltd. index of 125 European companies dropped this month to a record 76 basis points below bonds issued by countries from Greece to Germany and Italy.
European companies bought back a net $90 billion in equity this year, according to data from UBS AG. While that’s a rebound from $140 billion of net selling in 2009, it’s down from the annual average of $360 billion in repurchases between 2005 and 2007, data compiled by the investment bank show.
European corporate debt bears watching. Look for moves that do not reflect the company or the industry. There is always opportunity in fear or dismissal.
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