French election first round result lifts overhang on European markets


Fund Commentary
18 May 2017


European financial markets were in a “wait and see” mode for the main part of April until the first round election result in France on 23rd April. Macron’s win in the first round, with polls at the time indicating a 60/40 probability of winning the election, removed the main overhang in Europe for now. The last week of the month was pretty active and the Fund’s benchmark finished the month with a positive return (+1.98%).

In that context, the Fund recorded a +4.23% return in April, outperforming its benchmark. Year to date return for the Fund is now +15.23%, a +6.99% outperformance. Granges was the most significant monthly contributor to the performance, followed by Spie and Norma. At the other end of the spectrum, Mauna Kea, Metall Zug and Barco were the three main detractors. The number of positions remained constant in April as the Fund disposed of its investments in Trigano and Mille Mercis and initiated two new positions, Unieuro in Italy and another position still being built.

April 2017 marks the second anniversary of the Fund. Since inception on 5th May 2015, the Fund posted a +29.90% return while the Fund’s benchmark was up 4.51%. This is a 25.39% outperformance after 24 months of operations. Assets have grown in the meantime from approximately €28M at launch to €115M at the end of April 2017. It is anticipated that the €150M mark should be crossed during the month of May.

In April, the Investment Adviser decided to participate in the IPO of Unieuro in Italy, one of the top white goods and consumer electronics retailers in Italy with 18% market share. Post the merger and integration of a struggling retail chain owned by UK company Dixons, Unieuro is rapidly expanding through new openings, M&A and a new e-commerce platform enabling the company to adopt an omnichannel approach.

Risks related to the investment case, mostly a weak Italian macroeconomic environment and intense price pressure from e-commerce, forced the selling shareholders to price the IPO below the originally envisaged price range. At the IPO price (€11 per share), the stock was trading with a Free Cash Flow yield north of 15%. Unieuro announced its willingness to distribute the largest part of the free cash flow with a €1 annual dividend, translating into a 9% dividend yield. This, coupled with the new Italian tax savings scheme (PIR) directed towards investments into small-sized domestic stocks held for five years, should provide the Fund with downside protection coupled with sizeable upside potential when market participants discover the cash generative nature of the business.


The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 15/05/17 and are based on internal research and modelling.