Allianz’s Thorsten Winkelmann finds European growth, despite challenging macro climate

Allianz Global Investors portfolio manager Thorsten Winkelmann says some European companies are still able to grow their earnings, and their share prices, despite the macro economic uncertainty for the region and the current earnings season being, on average, disappointing.

Winkelmann (pictured), who runs about €6bn in European growth equities strategies at the German asset manager, says he has not struggled to find attractive growth companies with the kinds of characteristics he requires, to invest.

Some mid-caps he holds have grown their market size beyond ‘mid-cap’ status, which is defined by a market cap of less than €3bn, since Winkelmann bought them; other holdings continue to command pricing power in their industries; and others that are dependent on more cyclical industries for their revenue can control and adjust their own costs “to emerge stronger from difficult times”.

His words come during a difficult fourth quarter reporting season for European businesses that are missing earnings per share expectations at a greater rate than any season since early 2009, according to Bank of America Merrill Lynch.

By the time 60% of listed companies had published fourth quarter numbers by the end of February, BOAML said only 43% had met or beaten analyst forecasts – even though consensus EPS growth forecasts for 2011 have fallen from near 12% in mid-2011 to around 3% now.

Sectors that disappointed the most were banks (52% missing target), which seem at an extended trough for their industry; the technology sector (50%); and industrials (56%).

Winkelmann, who selects companies in a bottom-up perspective rather than making sector calls, says: “Companies should be able to deliver superior structural growth over a market cycle mostly independent of the state of the market cycle – a company can be profitable from an underlying structural [reason] or from the superiority of its business model.

“We search for structural growth, and [whereas] growth can typicallybe explained by a cyclical component and/or a structural component, we do not make explicit use of the cyclical component.”

He points to performers among smaller European companies, which have outgrown the moniker ‘mid-cap’ as their shares prices rose, thus reducing Winkelmann’s exposure to the small- and mid-cap strata from about 18% early this year to about 12% now.

Bunzl has almost doubled its market cap while Fielmann has expanded its size also.

“Given the cashflow profile of these companies, the banks are more than happy to have them as their clients. If you take a look at companies like Fuchs Petrolub and Rotork, most of the small- and mid-caps we own are cash-positive.”



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