Fundamentals have returned

February was a strong month for the Strategic European Silver Stars Fund, returning +5.49% and outperforming the benchmark by 3.05%.

Fund Commentary
9 Mar 2021

February was a strong month for the Strategic European Silver Stars Fund, returning +5.49% and outperforming the benchmark by 3.05%.

Unusually, the vast majority of positions contributed positively, and the shortlist of negative contributors had limited impact. Year-to-date the Fund posted a total net return of +5.24% compared to +1.67% for the benchmark (3.57% relative outperformance).

The largest contributors to February’s performance were: Ipsos (+2.02%), Akwel (+1.74%) and Barco (+0.90%). Just Eat Takeaway was the largest detractor (-0.84%) during the month, followed by Iliad (-0.17%) and Brembo (-0.11%).

In February – Ipsos the Fund’s largest position – was also the largest contributor with the stock up 21.4% over the month. During February, Ipsos released better than expected FY 2020 results. It was reassuring to see markets responding to the fundamentals, particularly after the stock had drifted lower inexplicably in January.

The key takeaways from Ipsos’s results were:

1. The company’s excellent management of the health crisis last year. The company returned to revenue growth in Q4 (+1.4% organic).

2. Cost containment enabling EPS growth in 2020.

3. Very strong cash generation with €265M free cash flow (FCF), translating into a 20% yield at the time of release.

The upside potential remains substantial, Ipsos is still trading below 10x PE 2021 with more than 10% EPS growth for the coming years. The CEO succession process is ongoing with a nomination due to being announced in the coming months, which we see as a powerful catalyst for further stock appreciation.

Akwel’s results were released on 12th February, and they were even more impressive than Ipsos’. Akwel unveiled a Q4 organic growth of 13.6%, which compares to the global automotive market as a whole contracting by 0.7% in the same quarter.

Additionally, the company announced over €100M EBIT for 2020 (greater than 10.6% margin without any of the accounting tricks, notably capitalised R&D; a standard habit in the auto supplier industry) and €100M FCF.

It is useful to remember that back in March 2020, the market capitalisation was around €250M, meaning the stock was trading on a 40% FCF yield. Like Ipsos, Akwel trades below 10x PE 2021, with more than 10% EPS growth for the coming years, and with a greater than 10% FCF yield.

Barco rebounded in February on the back of reassuring news from the cinema industry in China and New York. China’s box office industry is setting a new record for the Chinese New Year long holiday, driven by high-quality movies. The robust ticket sales reflect the minimal impact of pandemic-related restrictions on the movie market. Andrew Cuomo, New York’s Governor, said movie theatres can reopen, subject to some safety restrictions, on 5th March. As mentioned in January, we continue to see Barco as one of the best vehicles to own when restrictions are lifted.

On the detractor side, only one position had a negative contribution of more than 20bps. Just Eat Takeaway declined by 16% in February as the stock sold off alongside all companies perceived as lockdown winners. There was no company-specific news on Just Eat Takeaway during the month, however, there was a significant ruling on Uber for the gig economy, which does not impact Just Eat Takeaway, but will impact many of its competitors.

The landmark UK ruling on Uber required Uber to pay the minimum wage to its drivers, with the European Union set to propose an EU-wide regulatory framework by year-end, and similar decisions in Spain and the Netherlands.

Just Eat Takeaway already employs its riders, so the company is insulated from any direct risk. It may yet benefit however as its competitors have to pivot, modify work contracts and raise prices to counter the implied P&L impact. We have always considered Just Eat Takeaway’s attitude as the appropriate one vis à vis its riders. It also shows the risks for those investors that do not research and assess ESG factors.

Finally, from a valuation standpoint, Just Eat Takeaway trades on 80-85% Gross Merchandise Value, while all transactions in the sector take place at around 1 to 1.5x that metric. It is intriguing to see one of the leaders, and in our view, the only profitable business model in the industry, trading at such a steep discount. There was no significant news during the month to report about Iliad or Brembo.


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.

Please do not hesitate to contact us or visit the Strategic European Silver Stars Fund Page >

Adam TurbervilleAdam Turberville
+44 1481 742380

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 03/03/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.