LIVE MARKETS-European software: a sector in limbo

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EUROPEAN SOFTWARE: A SECTOR IN LIMBO

U.S. President Trump's 90-day pause to most reciprocal tariffs has left Europe's software sector in limbo, according to Jefferies analysts, and shares are still not cheap enough to look through the current noise.

"Uncertainty is the one certainty," writes Jefferies.

"In our view, the pause in tariffs and now exemptions on electronics doesn't remove all business uncertainty, and it seems likely some decisions will push to the right."

This will likely create some earnings risk as Europe heads into first quarter reporting season.

Navigating the current scenario, Jefferies seeks relative comfort in companies with high levels of recurring revenue (e.g. SAP, Sage) and strong balance sheets (e.g. Computacenter), while prefers to avoid companies with transactional business models (e.g. Dassault).

They also believe valuations are yet to reflect earnings risk, despite trading below 10-year averages. Meanwhile the scale and speed of the move in the euro exchange rate could also act as a headwind.

"As a generalisation, c40% of revenues are dollar-denominated and aside from some domestic players (Bytes, Fortnox, Softcat), this creates mild downward EPS pressure across the sector," Jefferies says.

(Samuel Indyk)

EARLIER ON LIVE MARKETS:

BROAD GAINS LIFT THE STOXX CLICK HERE

BEFORE THE BELL: TECH CHARGES UP, LVMH KICKS OFF EARNINGS CLICK HERE

DOING THE TARIFF TWO-STEP CLICK HERE