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SW Mitchell's top picks to play European recovery
on Oct 09, 2013 at 14:18
Citywire AA-rated Stuart Mitchell reveals the stocks powering the performance of his European fund.
SW Mitchell Capital (SWMC) founder and Citywire AA-rated Stuart Mitchell's European fund has returned 33.7% to the end of July, outperforming the FTSE World Europe index which was up 30.5% over the same period. Here Mitchell reveals his top five European stocks that he hopes will power performance for the next leg of the European rally.
‘The world’s leading food, pharmaceutical and environment tester – Eurofins has seen rapid growth driven by increased demands for further consumer protection, as well as the availability of more sophisticated testing equipment and multinationals seeking to protect value of brand,' Mitchell explained.
‘The group has an impressive track record, 18% and 27% compound growth in revenues and profit respectively over the past 5 years. Its profitability should increase further as acquisitions, notably Lancaster, are integrated into the group.’
‘Market leader in credit bureau and information services, Experian has become increasingly globally diversified. For example, the acquisition of Serasa in Brazil in 2007 has been very successful, and now accounts for 17% of group revenues,' Mitchell said.
‘It is targeting further international growth, as seen by the recent acquisition of Computec in Colombia and the expansion of credit bureaux in Australia and India.
‘By investing through the downturn, Experian has stolen market share off of its competitors. It trades on some 18x forward earnings, with a free cash flow yield of 5.5%. We believe the shares are good value considering the company’s strong track record, posting 15% four year earnings CAGR.’
‘Mitchell explained: 'SAP has a strong record, having compounded over 10% per annum earnings growth over the past 10 years. The business also generates a 25% operating margin and 21% return on equity.
‘The recently launched in-memory ‘Hana’ technology should significantly reinvigorate the business, and the advances it brings enable real-time access to ‘big data’. It is also making significant steps in cloud and mobile computing.
‘It presents compelling value, trading on 17 times prospective earnings.’
‘The French energy group company boasts the largest nuclear generation capacity in the world and is the largest power generator in France – with 80% market share – and the UK,' Mitchell explained.
‘EDF is preparing to extend nuclear lifetimes from 40 to 50 years. If approved by the French state, this could add some 50% to the value of the group. We could expect tariff and interconnect price increases to more fairly compensate for production costs in the future.
‘Trading on 10 times earnings and yielding 6%, the shares are good value.’
‘Having struggled in the face of a 23% fall in European new car sales over the past five years, Peugeot management has responded aggressively to stabilise the business. The benefits of cost cutting, increased modularisation and joint purchasing with GM should enable operating cash breakeven by 2014,' Mitchell said.
‘While it continues to invest heavily in China, Russia and Latin America to reduce dependence on the European car market, the recent EU endorsement of the French state’s support its debt will give Peugeot vital time to refinance as the European car market revives.
‘Peugeot trades on just 2 to 3 times recovery earnings, which appears very cheap, especially considering its 13% and 21% share of the European car and van markets respectively.’