Nordic equities still good value says ODIN manager
Nils Petter Hollekim, senior portfolio manager at ODIN Fund Management says price/book and price/earnings figures suggest upside still exists for Nordic equities, particularly those exposed to faster growing emerging markets.
Hollekim, manager of the ODIN Norge, ODIN Sverige and ODIN Eiendom funds, said that concerns around the impact of inflation on markets such as India and China persist, but industrials such as SKF (ball bearings) or Autoliv (seatbelts and other vehicle safety systems) have proven ability to maintain pricing power and retain strong positions in their relevant markets.
These are also examples of Nordic companies with strong balance sheets, which should allow them to maintain acquisition objectives. Forecast earnings growth remains strong, and ODIN believes share prices in these examples could rise 30%-40% from their current levels.
Nordic industrials are refocusing on maintaining their margins rather than top line growth, but p/e multiples in the market mean they are undervalued compared to historic averages, ODIN argues. The estimated dividend yield for the full 2011 year is 4% or more for all Nordic markets excluding Denmark, according to figures from SEB quoted by ODIN.
Net profit growth will remain in double digits through 2012 across the region, excluding Norway, the estimates suggest. This is a slowdown compared with 2010 figures, but still represents value for money at current prices.
ODIN’s global outlook includes a number of risk factors that could see estimates unsettled.
Inflation in China and other emerging markets has already been mentioned. Others are energy inflation causing a slump in consumption; failure to find a solution to the Greek situation; and increased concerns around the world’s biggest oil producers, particularly Saudi Arabia.
According to ODIN’s figures a 10% rise in the price of oil could shave 0.2%-0.3% off of global GDP.
Macro factors such as levels of debt in Japan, the US and the eurozone, as well as the potential for the property bubble to burst in China are also worrying.
And at the company level there are still factors such as limited access to credit which are causing problems. ODIN says that Norsk Skog recently had to pay a coupon rate of 13% to obtain money. Banks ought to be able to lend at a lower rate considering base rates, but access to credit is still tight.
However, countering the downside risks are the ongoing positives. Wage inflation continues to be held down in developed markets, while global GDP remains healthy. And for investors in developed markets there is relatively greater resistance to the impact of oil price shocks, for example, because many emerging markets subsidise the street price of petroleum products. The US economy is twice the size it was in 1980, but overall oil consumption there has not increased by much since then.