Europe has been a popular choice for investors in recent years. This is largely because the region is home to thousands of well-established businesses, many of which are global leaders in their field, and because Europe’s policy makers are determined to keep the region out of another crisis. Although European economies are slow, they are not stagnant, says Rory Bateman of Schroders.
While economists fret over whether the Eurozone will return to its pre-crisis normal in economic terms, it’s important to remember that investors invest in businesses, not economies.
“Europe remains our preferred developed equity market at the current point in time, as the direction of monetary policy is supportive and western Europe benefits strongly from low energy prices,” says Jason Hollands of Tilney Bestinvest.
Here, fund managers highlight five of their favourite European companies which stand out as great investments right now.
Danish high street jeweller Pandora has grown in popularity and is opening up new stores around Europe at a rapid pace. But it hasn’t yet saturated the market and the outlook is still “extremely strong”, says Nicolas Walewski, manager of the Alken European Opportunities fund.
He says expansion in Asia is the next step for the business. Pandora’s Hong Kong stores are among its most profitable and this should pave the way for success with China’s newly affluent class.
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“Pandora has been focusing its energy on Europe and the US, but continued expansion in Asia will accelerate its growth even further. Pandora has 19 stores in Singapore and 40 in China, which puts into context the huge growth opportunity for the company,” he says.
Its dominance in sportswear is undisputed and after going through a bad patch, Adidas is emerging as a stronger business.
“Following a period of struggle and re-structuring, Adidas is stretching its legs. Sales have risen strongly, driven by double-digit percentage growth in Western Europe, China and Latin America,” says Martin Todd, manager of the Sourcecap European Alpha fund.
The telecoms industry can be cut-throat. There’s a small number of providers selling virtually the same products and jostling for customers by undercutting each other’s offers. But there are aspects of the industry which make it interesting from an investment standpoint. Regulation makes it hard for new entrants to appear and upset the market. Phone companies tend to lock customers into one or two year contracts, which gives a predictability to their revenue streams that other industries lack.
Of Europe’s telecoms companies, France’s Orange stands out as a particularly strong player, says Stuart Mitchell, manager of the SWMC European fund. It has 263m customers worldwide and employs 170,000 people.
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“For years we have been intrigued by the strength of Orange’s franchise,” he says. “Recent quarterly results announcements have been very encouraging.” Orange’s management are on a cost-cutting drive while the burden of regulation is easing. Mitchell expects mergers in the industry in the years ahead, and Orange is currently looking into acquiring Paris-based company Bouygues Telecom, which will expand its business further.
Tenaris is a leading supplier of steel pipes and other paraphernalia to the oil and gas industry. It has operations all over the world and is listed on four stock exchanges, including Milan.
The oil industry is in a severe downturn, as the oil price is staying low amid a glut of supply and too little demand. The situation has hurt companies involved in the sector and Tenaris has suffered too, as its sales have fallen by around $3bn.
But some investment managers are looking at oil sector shares in the hope of buying now while negativity prevails. Potentially, this spell of cheap oil will come to an end and the industry will return to full health once again.
Tenaris is a top company that should be able to bear out these tough times – and be in a stronger position when the oil sector bounces back, says Tom Stubbe Olsen, manager of the Nordea 1 European Value fund.
“Only companies having a robust balance sheet and offering solutions enabling oil firms to reduce their cost of operations will be able to weather the storm and will reinforce competitiveness,” he says.
Based in the Netherlands, publisher Wolters Kluwer previously relied on printing journals for a large chunk of its revenues. The rise of the internet has seriously challenged paper industries, but it has successfully transitioned to making money out of digital products.
“The company has strong market positioning providing information services to relatively stable industries – such as law, tax, accountancy and health,” says Chris Hiorns, manager of the EdenTree Amity European fund. “Over 80 per cent of its revenue now comes from digital services – including more innovative and interactive products. It is also well placed to avoid the headwinds generated from the slowdown in China and emerging markets, with over 90 per cent of its revenues generated in Europe and the US.”
This article appears in the March edition of City A.M.'s Money magazine, which will be distributed with the paper on Thursday 31st March.