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deEquity markets continued January’s steady rise in February with the Fund’s benchmark up another 2.17% during the month. Since the middle of January 2023, following many cooler-than-expected inflation numbers, plus stronger real growth numbers, the narrative has totally shifted from the worries of late 2022.
From September to December 2022, financial markets were pricing in a hard landing. Since then, thanks in part to warm weather and cheaper energy, the eurozone has avoided the expected winter recession. Expectations are being revised upwards; the European Commission is now looking for the eurozone GDP to grow 0.9% in 2023 versus just 0.3% three months ago.
The current debate is now drifting towards a no-landing scenario, with resilient economic data and presumably a sticky inflation environment. On the corporate side, the overall sentiment is that the earnings season so far is not as bad as feared. For the first time since the beginning of 2022, the proportion of companies seeing positive revisions has bounced, both in Europe and in the US. This statistic is consistent with the qualitative impression that we have formed from the companies we have met so far this year.
The Fund continued to perform well in February with a +3.71% return, taking the year-to-date performance to +8.01%. This has been driven by some stellar performances from the Fund’s positions. As of 3rd March, when writing this letter, Nordic Paper is up 45% YTD, TeamViewer 27%, Piovan 25%, Bertrandt and Bekaert 21% and Mersen and Verallia 20% to name but a few.
The largest contributors to the Fund’s performance in February were: TeamViewer (+1.01%), Verallia (+0.76%) and Bekaert (+0.68%). Just Eat Takeaway was the largest detractor during the month (-0.35%), followed by Ipsos (-0.21%) and Befesa (-0.17%).
We are pleased to see TeamViewer as not only the top contributor for the month but more importantly the top Fund contributor year to date after the stock rose +27%. This has been driven by several strong reasons:
- Strong Results: In early February, the company released its FY ‘22 numbers with profitability and cash flow coming ahead of consensus.
- Share Buybacks: Post the €300 million buyback in 2022, TeamViewer announced a new share buyback programme of €150 million, which equates to roughly 7% of its market cap based on its pre-announcement closing price. This is a strong signal of the company’s confidence in the business and its continued growth going forward.
- The potential end of the badly received Manchester United sponsorship deal: Although it has already been confirmed that the current Manchester United sponsorship deal will not be renewed at the end of its five-year contractual term, the sale of Manchester United creates a very significant chance of the sponsorship ending much sooner.
- Insider Confidence: the CEO acquired €2.2 million of shares in February.
Verallia, the French glass manufacturer, is a name we have discussed on several occasions in the last twelve months as not only was it one of the significant additions to the portfolio in 2022 (acquired in Q1 after the Ukraine invasion), but it was also the third largest contributor to the Funds’ 2022 performance. The buying opportunity arose after the stock fell from €31 on 31st December 2021, to €20 in the early days of March 2022 on the back of the invasion of Ukraine, along with all the companies that passive sellers believed would be impacted by high energy prices and therefore ignoring the fact that Verallia always hedges its gas exposure. Apart from this amazing entry opportunity, this investment proved to be a real success thanks to several earnings upgrades during the year, highlighting management’s ability to mitigate increasing energy prices with substantial price increases. The FY ‘22 report delivered another earnings beat and the company issued a bold 2023 guidance statement of >20% growth and record €1bn EBITDA, implying 9% upside vs market expectations. The stock is still nowhere near a fair multiple in our opinion.
Bekaert’s stock price also continued its positive development in February without any real news. 2022 results were better than expected when announced on 1st March. Bekaert also announced a €1.65 dividend (translating to a 4% yield) and a second share buyback programme of €120 million (similar to the one completed in 2022). Together, these account for a 9% cumulative shareholder return. Furthermore, Bekaert has announced the very positive news of the sale of the SWS activities in Chile and Peru for an enterprise value of USD 350 million leading to cash proceeds of USD 136 million. This is the first move in the long-awaited portfolio rationalisation that is one of the main pillars of our investment thesis.
On the detractor side, there is no specific news to be mentioned for Just Eat or Befesa. Ipsos on the other hand, published its 2022 report on 16th February. Q4’22 revenues were in line; other indicators were equally good, or even slightly better, and the 2023 outlook is encouraging with 5% organic growth as a guidance. The stock price gave back a little after the release; standard profit taking behaviour for an in-line report of a stock that finished 2022 up 45%. The stock remains unbelievably cheap with a solid short- and medium-term outlook. Based on 2025 targets, our target price now stands at around €100 per share which compares with a €60 share price. This explains why Ipsos remains the Fund’s strongest conviction.
As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Download the latest factsheet.
Please do not hesitate to contact us or visit the Strategic European Silver Stars Fund Page.
Adam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com
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The views and statements contained herein, including those pertaining to contribution analysis, are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 03/03/2023 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.