Continued upward trend in European financial markets in November


Fund Commentary
17 Dec 2015


Post a strong rebound in October, European markets continued their trend upwards in November. The Fund’s benchmark, the Eurostoxx 600 Net Return posted a +2.81% return during the month. Hopes about a QE extension in Europe and progressive interest rate hikes in the US were the main drivers behind the positive market performance.

In that context, the Fund was up by 2.98% in November, outperforming its benchmark by 0.17% despite a net exposure of approximately 85% throughout the month. Lisi was the most significant contributor to the performance, followed by Norma and Komax. At the other end of the spectrum, Tom Tailor, Fermentalg and 1000Mercis were the three main detractors from performance. No new investments were initiated during the month. On the contrary, the Fund exited two positions for distinct reasons: Datalogic with a +22.3% return (entered in May 2015) and Valtech with a +10.3% return (entered in June 2015). The investment in Datalogic was sold when the stock price hit the Investment Advisor’s pre-defined and anticipated exit level. With regards to Valtech, most of the investment had already been sold off after the h1 results released in September 2015, which triggered more questions
than answers. The Investment Adviser’s skepticism grew even more with the Q3 report and it was decided to close the position. 

LISI, this month’s top contributor, is the Fund’s largest position and a clear example of companies that meet the Investment Adviser’s investment criteria. The company’s origins date back to the late 18th century with the manufacture of screws. Today, LISI is a family-held company specializing in producing fastening systems for aerospace, automotive and medical applications. The company developed its revenues in the automotive and aerospace divisions from close to €150m in 1992 to nearly €1,400m in 2015 through a mix of organic and external growth. Additionally, in the last few years, LISI has developed a range of medical implants and instruments (where it is expected to report €75m in revenues in 2015). In the aerospace business, which accounts for 85%+ of its operating profit, LISI operates in an oligopoly where the top 3 players hold 80% market share and generate approximately 15% operating margin. Airbus and Boeing’s order books are at record levels, which should guarantee a high work load for the coming years. In spite of high visibility, LISI trades at 9x EBIT 2016 and 13x PE 2016, a level the Investment Adviser finds particularly attractive for such a resilient business model.

The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 09/12/15 and are based on internal research and modelling.