When the mist clears

The Fund’s benchmark declined by 3.29% in September, ending seven consecutive months of positive returns, with the largest downward move concentrated in the last week of the month (-2.68%).

Fund Commentary
7 Oct 2021

The Fund’s benchmark declined by 3.29% in September, ending seven consecutive months of positive returns, with the largest downward move concentrated in the last week of the month (-2.68%).

Against the backdrop of increased volatility during the month, the Strategic European Silver Stars Fund gave back 5.69%; however, year to date the Fund has returned +18.52%, compared with 16.13% for the benchmark, an outperformance of 2.39%.

September marked a clear return of volatility with eight very volatile days (>1% change). The economy, central banks, COVID and politics were all suddenly a problem for markets. The impacts of these threats on EPS and outlook for 2021-22 are still unclear.

Towards the end of the month, concerns about Chinese growth and the risk of Evergrande defaulting compounded, with comments from the Fed reflecting growing worries about the evolution of inflation. These concerns translated into a higher level of risk: the VIX and iTraxx Crossover gained 10 and 25 points respectively during the month.

As always when markets panic there is indiscriminate selling and as we go on to discuss with regards to individual positions below, there are often opportunities to invest additional capital at attractive multiples, resulting in significant upside potential and opportunities to outperform markets in the future, as we demonstrated last year.

The largest contributors to September’s performance were: Piovan (+0.13%) and Indra (+0.06%). Bekaert was the largest detractor (-1.06%) during the month, followed by Just Eat Takeaway (-0.78%) and Boozt (-0.55%).

Given the limited magnitude of contributor impact, we shall focus solely on the detractors this month, as we strongly believe that these investments have been unfairly punished and their recent stock price falls appear totally unwarranted to us.

There was no material information released during the month that could explain the 11% drop in Bekaert’s stock price. The only news was a brokerage report issued on 28th September. In this report, the analyst mentions that: “Bekaert is trading at very undemanding multiples (…) and double-digit FCF yield. From a historical perspective, these multiples are at the very low end of their trading range. This is in contrast with its structurally improving margin and ROCE profile and higher cash returns.”

In this report, the target price has been raised to €57 and could be increased to €65. This compares to a month-end stock price of €35.98. At this price and based on our own assumptions, Bekaert trades on 3x EV / EBITDA 2022, 6.4x PE 2022 and generates a 15% free cash flow yield.

Just Eat Takeaway is in a similar situation after suffering from the tech sector sell-off and noise around the intention to legalise permanent fee caps in some US cities. In our opinion, the most important news for the entire sector, and a long-awaited catalyst, has been totally disregarded by financial markets; European regulation is coming. In a vote on 15th September, members of the European Parliament demanded people working for digital labour platforms, such as food delivery services, should have the same rights as traditional employees.

They also mentioned that platform workers are often misclassified as self-employed, depriving them of access to social protection and other labour rights. To address this lack of legal certainty, Parliament proposes a reversal of the burden of proof: in case of legal proceedings, employers should prove there is no employment relationship, rather than vice versa.

We have always argued regulation is good for Just Eat Takeaway as they are the only company that already properly employs its riders in most countries. The impact on the industry is significant as all companies will now have to pay social security taxes, insurance, and sick leave.

We believe unit delivery costs in logistics could go up by roughly 30% for Just Eat Takeaway’s competitors. With most logistics companies already experiencing heavy losses, we believe these companies have the choice to either pass on the cost increase to consumers and restaurants or absorb even higher losses.

Like Just Eat Takeaway, Boozt also suffered from the tech sector sell-off with investors cutting long-duration exposure in the context of upward pressure on bond yields.

As fundamental and long-term investors, we are glad to see volatility coming back. This could create market disruptions that we can capitalise on at a time when our Iliad investment has been tendered and cashed in on 4th October.

In addition to that, the portfolio is filled with companies with extremely sound balance sheets: 16 of the portfolio’s 26 holdings sits on a net cash position. Companies could also be in a position to take advantage of the market volatility and deploy their capital to fund further growth.


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. Download the latest factsheet.

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 04/10/2021 and are based on internal research and modelling. Performance data is based on the Strategic European Silver Stars Fund (A EUR Class). Please click on Disclaimer Page to view full disclaimers.

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