You are here: Home - Investing - Experienced Investor - News -

Three recovery opportunities across the UK and Europe

0
Written by: Stuart Mitchell
24/02/2017
The UK and Europe seem to be rarely out of the news with concerns around Brexit and upcoming European elections casting a cloud over the prospects for stock markets. But could you be missing out by not investing?

We continue to believe European equities present a compelling long-term investment opportunity.

Firstly, the British economy at present appears to be largely unaffected by the Brexit vote, posting robust PMI (Purchasing Managers Index) numbers over recent months. On the Continent, our positive view on the European economy has been further supported by the publication of a raft of very encouraging recent data. Impressively, eurozone manufacturing PMI rose to its highest level for five-and-a-half years at the end of 2016.

Importantly, our recent company meetings supported the headline data. Brexit is rarely mentioned in our numerous company meetings as a threat to the recovery. Here are three opportunities we have identified.

Banks – Lloyds Banking Group

One of the most significant cyclical exposures within our SWMC European fund remains the banks, which constitute 11% of the fund. We continue to believe the market has failed to appreciate the benefits of stable financial margins, coupled with draconian cost-cutting and easing regulatory pressures.

We have focused on the strongest retail banking franchises, such as UK giant Lloyds Banking Group, where we believe that returns should rather rapidly return to pre-crisis levels. We are also bullish on Italian group Intesa Sanpaolo for the same reason. Elsewhere in the sector, we are also invested in Banco Popular and Commerzbank – banks in the process of disposing of significant amounts of non-performing assets in order to refocus on industry-leading core businesses.

House builders – Taylor Wimpey

Post the UK’s referendum vote to leave the European Union, a number of companies have been consistently more upbeat than many had expected. In particular, UK house builders made a number of encouraging comments. Apart from prime central London property – a niche market with issues long in the making – Taylor Wimpey management informed us activity is as strong as or stronger than before the referendum.

We remain significantly invested in the UK housebuilding industry, which continues to enjoy buoyant demand and limited cost inflation. We also have a position in Barratt Developments in addition to Taylor Wimpey.

Manufacturing – Vallourec

An addition to our portfolio in the latter part of 2016 was French group Vallourec, one of the leading manufacturers of specialist tubes for the oil and gas industry – as well as for the electrical, petrochemical and automotive industries. The company is restructuring in the face of a sharp slowdown in the oil and gas industry. In particular, management is working hard to improve productivity in Europe. It is planning 5,000 redundancies across the group, including 1,000 job cuts in France. In Brazil, furthermore, two blast furnaces are to be closed and manufacturing refocused on one key site.

The combination of €750m cost savings and a recent €1bn capital increase should allow the group to weather further volume declines. With prices already starting to firm up in the US, we imagine its shares could be trading on 1.5 times earnings as we approach the next peak in the cycle.

Stuart Mitchell is manager of the SWMC European fund

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

After an award-winning health insurance provider?

Winner of best online health care provider in the YourMoney.com Awards 2015

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

Guide to valuations and surveys

Do you need a vanilla valuation or a survey with a fringe on top? Martyn Stones explains the different types o...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
fund managers
Woodford unveils detail of new fund

Woodford Investment Management has announced details of its third equity income fund to be managed by its head of investment...

Close