Earnings season creates some volatility in European financial markets


Fund Commentary
21 Dec 2017


During November, the Fund declined by -3.42% on an absolute basis. Year to date however the Fund has posted a positive absolute return of +19.20%, outperforming its benchmark by +9.42%. The Q3 earnings season coupled with uncertainty surrounding the US fiscal reform created some volatility in European financial markets; even companies producing results which were in line with expectations were often met with profit taking. The Fund’s benchmark was down -2.02% during the month.

Takeway.com was the largest monthly contributor to the Fund’s performance, followed by Kendrion and Boozt. Takeaway.com’s stock price was up 11% during November (adding 0.34% to the Fund’s performance), with little specific news to explain the move, especially in the context of the market decline and skepticism surrounding the valuations of tech companies. The only news was an announcement early in the month of a partnership with Tripadvisor; however very few details were published. The brokers’ coverage has increased post the IPO of Delivery Hero and this may have increased the spotlight on those highly attractive business models more generally in Europe. Both Kendrion and Boozt benefited from satisfactory Q3 results, released during the month, triggering EPS upgrades and the revisions of target prices by some brokers.

At the other end of the spectrum, Balta, Metall Zug and Tarkett were the three main detractors. Balta was the largest disappointment during the month (impacting the Fund’s performance by -1.03%) with a severe stock price decline after a company warning regarding profit expectations for 2017, just two weeks after having reported an already weak set of Q3 results. For a company IPOed in June 2017, the impact on management’s reliability and credibility could hardly be worse. Consequently, the stock price impact was far higher than the EPS impact. Having spoken to the management team on several occasions since the decline in the share price, the Investment Adviser decided to increase its position when the price was below €8. Metall Zug also reduced its earnings expectations for the year but for totally different reasons, the primary reason being exceptional expenses related to releasing sizable value in their real estate portfolio in Zug. The announcement however does not change the investment case at all. There was very little news regarding Tarkett during the month to explain the evolution of the stock price.

As mentioned in the October commentary, two new positions were added to the portfolio during October, both in Switzerland. The Investment Adviser has now finished building the positions and can disclose that the new positions are U-Blox and Daetwyler. In November, the Investment Adviser initiated a position in Ipsos in France, one of the global leaders in market research and panels.

The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 13/12/17 and are based on internal research and modelling.