On the inflation front, the figures continue to show significant pressure. There are multiple drivers of inflation: some are exogenous in nature, such as supply chain disruptions and energy costs; and others are more endogenous, such as industrial relocation and wage inflation. In this context, the US and European central banks are continuing their monetary tightening.
While the recessionary effect of such measures is not yet visible, some segments of consumption in Europe are beginning to suffer from rising energy bills and the general rise in the price of goods and services.
In August, the Strategic Europe Quality Fund declined by 6.87%. Sector allocation and stock selection were negative by 121 bps and 119 bps respectively. Our structural underweight in Energy and Financials and our overweight in Industrials explain most of the sector allocation performance. August’s decline follows the significant rebound of July.
During the month, we sold our positions in Adyen and Rational.
Adyen remains an exceptional growth stock, but we expected revenue growth to accelerate in the second quarter, which came in just in line with consensus expectations. In addition, the company slightly disappointed in the evolution of its operating margin, notably due to the acceleration of its recruitment.
Given the demanding valuation multiples in the short term (justified by the company’s very high growth rate) and the lack of a short-term catalyst, we decided to exit the position.
Rational’s release led us to revise our revenue and operating margin forecasts downwards. With less potential for recovery, we decided to exit the position.
During the month, we initiated a position in Campari. Historically, we had reservations about valuation levels and growth drivers mostly dependent on the Aperol brand.
Following a long period of underperformance, the relative valuation vs. other spirit names has returned to reasonable levels, while the growth profile seems more balanced due to the success of the Campari, Espolon and Wild Turkey brands.
Three years after the acquisition of Grand Marnier, the company’s balance sheet allows for yet another major acquisition, historically a good catalyst for the stock.
As always, we invite investors and prospective investors, to get in touch should you wish to discuss the positions held in the portfolio. Please do not hesitate to contact us for further information.
+44 1481 742380
The views and statements contained herein are those of Phileas Asset Management in their capacity as Investment Adviser to the Fund as of 12/09/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.