As the European equities market is stimulating the appetite of investors, the French asset manager Métropole Gestion explained its choice of picking cyclicals and telecoms stocks in its portfolios.
Métropole Gestion sees the fall of oil prices and the depreciation of the euro following the announcement of the ECB’s asset buying programme as “two positive fundamental changes” for European companies. “Their effects on European corporate earnings can already be seen,” the firm underlined.
The French asset manager said “the negative forex effect linked to the strong euro” is in “the process of reversing”.
“Industrial groups that use a lot of energy materials, such as cement makers Lafarge and HeidelbergCement are also starting to benefit from the drop in oil and oil derivatives prices, and from synergies linked to recent acquisitions,” added Métropole Gestion.
“These cyclical companies are heavily represented in our portfolios due to their substantial undervaluations, as are temporary employment companies (Randstad, Hays and Adecco) and IT service providers like Capgemini and Atos, which are seeing a complete turnaround in their market status,” commented Métropole Gestion.
On the telecoms stocks, the French asset manager said : “The telecoms we brought into our portfolios during the summer 2013 are also big positions, in names like Deutsche Telekom, Telecom Italia, British Telecom, Telefonica and Vodafone. After several years of decline in operating income, most telecom operators are starting to turn a corner.”
“By authorising consolidation deals in many European countries over the past year, the EC Competition Authority has sought – much like the US anti-trust authority a few years ago – to stimulate investments in very high speed broadband networks. Observing trends in the US also suggests that these investments have not only been the main driver behind the improved profitability of the top telecom groups, but also behind the improvement in their valuation multiples,” argued Métropole Gestion.
“Furthermore, the work undertaken in recent years by European telecoms to strengthen their balance sheets has opened the door to a new investment cycle, without jeopardising their ability to pay high, sustainable dividends,” the French asset manager added.
The firm concluded : “Many cyclical names featuring sizeable undervaluations as well as an excellent financial health are poised to take full advantage of these new drivers thanks to the restructuring efforts and portfolio readjustments carried out in recent years. Telecoms have little exposure to the drop in both energy prices and the euro. However, they still have a lot going for them in terms of attractive investments, including low valuations, very positive catalysts and high, sustainable dividends.”
Established in 2002 and headquartered in Paris, Métropole Gestion managed €5,277m as at 31 December 2014. Outside France, the firm sells its funds in Switzerland, Benelux, Germany, Austria, Italy, Monaco, Spain, the UK and Sweden.