Quarterly results so far reveal weak top line growth but satisfactory cost control and margin development for European companies


Fund Commentary
19 May 2016


Despite annual and first quarter results being far from overwhelming, financial markets in April continued the upward trend initiated in mid-February. The Fund’s benchmark, the Eurostoxx 600 Net Return ended the month up +1.75%.

In that context, the Fund managed to post a positive performance as well with a +0.27% return in April, underperforming its benchmark by 1.48% for the month. Year to date, the Fund’s performance stands at -2.66%, translating into a 3.85% outperformance versus its index (-6.51% at the end of April).

After a disappointing start of the year, Mersen rebounded strongly in April and was the top contributor to the Fund’s performance. The Investment Adviser was pleased to note that several insiders bought shares between February and April (the CEO, CFO, Chairman of the Board and another board member). In terms of positive contribution, Mersen was followed by Lisi and SLM Solutions (a position discussed in our October 2015 Commentary Letter). At the other end of the spectrum, Norma, Aubay and Beneteau were the three main detractors.

The Fund initiated one new position during the month in MGI Coutier. MGI Coutier is a leading equipment manufacturer which operates in fluid management (81%) and mechanisms (15%), offering rubber, plastic and metal products. MGI Coutier is also involved in SCR emissions control systems and, in this context, has a contract with PSA that is forecast to generate revenue of €150-160m annually. Recent acquisitions – Avon Automotive in 2011 (USA) and Autotube SA in 2014 (Sweden) – have allowed MGI Coutier to double its sales over the last 5 years. MGI Coutier is a typical case of a well-managed, family controlled company with extremely limited sell side coverage. The investment case is based on the assumption that the SCR program, developed specifically for PSA, led to substantial losses in 2014 and 2015 that overshadowed the intrinsic profitability of the rest of the business. SCR losses should come to an end in 2016 and reveal the true margin potential of the company. It trades on very reasonable multiples: approximately 6x EV/EBIT 2016 and 9x PE 2016.


The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 12/05/16 and are based on internal research and modelling.