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Feras Al-Chalabi
Making the case for Europe
Quarterly Review
Q2-12
Page 1
Performance for Q2-12
Odey Allegra European returned -3.34% against MSCI Europe -2.69%.
CF Odey Continental European returned -8.38% against MSCI TR Net
Europe ex UK -7.62%.
At a stock level, the best performers were Sky Deutschland, Anheuser-Busch
InBev, Swedish Match AB and Industria de Diseno Textil S.A.
Infineon Technologies AG and Compagnie Financiere Richemont S.A. were the
notable detractors.
Page 2
European Equities are cheap
MSCI Europe - N12M Price to Earnings
(Latest = 9.7)
European Valuation Premium /
Discount Relative to USA %
Source: MSCI, IBES, Morgan Stanley Research
Source: MSCI, Morgan Stanley Research
Note: Average relative valuation across PB, PD, PCE. Sector neutral
valuation assumes that sector weights are in-line with MSCI World
Index.
Page 3
European Equities are under-owned
Source: Bank of America. Merrill Lynch
Page 4
European Equities are Global
Breakdown of MSCI Index exposure by geography
75
Exposure to developed Europe
% of Total Revenues
70
Emerging
Markets
29.2%
55
1997
2002
2007
2012
30
28
Emerging Markets
26
North America
24
% of Total Revenues
North
America
15.4%
60
50
Developed
Europe
53.5%
Others
2.0%
65
22
20
18
16
14
12
10
1997
Source: Morgan Stanley
Page 5
2002
2007
2012
Policy makers understand... just
Crisis
Policy
response
Complacency
Page 6
Europe: the response
ECB Balance Sheet
3000000
ECB balance sheet, total assets, mill eur
2500000
2000000
1500000
1000000
500000
Source: Haver Analytics
Page 7
2011 - Dec
2010 - Dec
2009 - Dec
2008 - Dec
2007 - Dec
2006 - Dec
2005 - Dec
2004 - Dec
2003 - Dec
2002 - Dec
2001 - Dec
2000 - Dec
1999 - Dec
1998 - Dec
0
The law of small numbers
2013 less pain from Spain
Numbers have already fallen 40% below replacement demand levels
Spain as a % of group sales
4.50%
4.0%
4.00%
3.8%
3.8%
3.5%
3.4%
3.50%
3.1%
2.8%
3.00%
2.50%
3.7%
2.2%
2.1%
2.00%
1.5%
1.50%
1.2%
1.00%
0.50%
0.00%
2011
2010
2009
2008
2007
2006
2005
2004
Source:
Page 8
2003
2002
2001
2000
US Housing
Houses are cheap ($m)
Sales are rising
4.25
Median house price /Median
income
3.75
3.25
2.75
2.25
2011 - Jan
2009 - Jan
2007 - Jan
2005 - Jan
2003 - Jan
2001 - Jan
1999 - Jan
1997 - Jan
1995 - Jan
1993 - Jan
1991 - Jan
1989 - Jan
1987 - Jan
1985 - Jan
1983 - Jan
1981 - Jan
Prices are improving
Mortgage costs are declining
Source: Haver Analytics
Page 9
Global GDP
6
5.5
monthly implied Global GDP
5
4.5
4
3.5
3
2.5
2
2012 - Jun
2012 - May
2012 - Apr
2012 - Mar
2012 - Feb
2012 - Jan
2011 - Dec
2011 - Nov
Page 10
2011 - Oct
2011 - Sep
2011 - Aug
2011 - Jul
2011 - Jun
2011 - May
2011 - Apr
2011 - Mar
2011 - Feb
2011 - Jan
2010 - Dec
2010 - Nov
Source: Haver Analytics
How to make Money in Europe
Special Situation
Sky Deutschland
Ferrovial
Category Winners
25%
Richemont
Swedish Match
ABI
Linde
55%
Recovery
Electrolux
Wolseley
20%
Page 11
What is the objective?
To outperform for investors over the investment cycle using the opportunity
set of European equities.
How do I achieve this objective?
Invest in companies that offer change or inflection coupled with a supportive valuation;
framed within an economic context.
These companies tend to be:
1.
‘GROWTH’ companies with dominant and improving franchises
2.
‘RECOVERY’ companies enjoying market repair
3.
‘SPECIAL SITUATIONS’
Page 12
Richemont: Mr Porter comes to town
Compagnie Financiere Richemont S.A.
53.10 0.70 1.34% 9:52:32 AMVWAP:51.74
High: 59.95 Low: 25.28 Chg: 105.94%
Compagnie Financiere Richemont S.A. - Price
60
55
50
45
40
Strong balance sheet 20% cash
35
30
Proven management team own 10% of
business
25
10/09
Strong structural growth profile – Cartier
& Net-a-Porter
Proven record of pricing power
Low valuation 13x PER
1/10
4/10
7/10
10/10
1/11
Source: Odey internal research, Factset, 3 yrs.
The information and any opinions expressed are believed to be reliable, but accuracy and completeness cannot be guaranteed
Page 13
4/11
7/11
10/11
1/12
4/12
7/12
Swedish Match: Adventures in Snus
Swedish Match AB
284.30 2.50 0.89% 9:52:39 AMVWAP:283.34
High: 294.50 Low: 133.50 Chg: 108.66%
Swedish Match AB - Price
300
280
260
240
Strong shareholder commitment to
buybacks & dividends
220
200
180
Growth in Scandanavia from innovation
& market share :
SNUFF only 20% of tobacco mkt
160
140
120
10/09
Growth in America through innovation :
Launch of SNUS last year
Proven record of pricing power
Low valuation 16x PER
1/10
4/10
7/10
10/10
1/11
Source: Odey internal research, Factset, 3 yrs.
The information and any opinions expressed are believed to be reliable, but accuracy and completeness cannot be guaranteed
Page 14
4/11
7/11
10/11
1/12
4/12
7/12
Electrolux
Electrolux AB
146.30 -0.60 -0.41% 9:53:48 AMVWAP:146.67
High: 200.40 Low: 93.15 Chg: 10.00%
Electrolux AB - Price
200
180
160
Strong restructuring imperative
executed by proven management
team
140
120
Compelling valuation
Profit recovery potential
100
80
10/09
1/10
4/10
7/10
10/10
1/11
Improving competitive environment
Source: Odey internal research, Factset, 3 yrs.
The information and any opinions expressed are believed to be reliable, but accuracy and completeness cannot be guaranteed
Page 15
4/11
7/11
10/11
1/12
4/12
7/12
Sky Deutschland
Sky Deutschland AG
2.47 0.08 3.35% 9:53:08 AMVWAP:2.42
High: 13.97 Low: 0.81 Chg: -81.08%
Sky Deutschland AG - Price
10
9
8
7
SkyD has 7% of a market that is
significantly larger than the UK.
Potential? BSkyB has 50% of a
market with 10m households.
Penetration catch-up story.
Good subscriber growth continues to
show through. Net additions in higher
margin products, raising ARPU.
The product suite completed in August
2011 with the roll-out of HD, 3D and
the addition of Sky Go to Sky +.
Trades on 1.9x EV/Sales, 40%
valuation per subscriber of BSkyB
6
5
4
3
2
1
0.9
0.8
0.7
'08
'09
Source: Odey internal research, Factset, 5 yrs.
The information and any opinions expressed are believed to be reliable, but accuracy and completeness cannot be guaranteed
Page 16
'10
'11
'12
Anheuser Busch: Home Brew
Anheuser-Busch InBev
63.64 0.58 0.92% 9:55:59 AMVWAP:63.21
High: 65.15 Low: 26.29 Chg: 127.73%
Anheuser-Busch InBev - Price
65
60
55
50
45
Strong track record in expanding
margin & returns
Strong shareholder commitment –
management own $200m of equity
40
35
30
25
10/09
1/10
4/10
7/10
10/10
1/11
US beer market has seen volume
declines for 3 years and yet still
profits grow.
Source: Odey internal research, Factset, 3 yrs.
The information and any opinions expressed are believed to be reliable, but accuracy and completeness cannot be guaranteed
Page 17
4/11
7/11
10/11
1/12
4/12
7/12
Conclusion
Strong team
Consistent application of process
Proven long term record
Strong opportunity set
Swedish Match
Odey analyst:
Raj Chaudhary
Electrolux
Odey analyst:
Massey Lopes
Sky Deutschland
Odey analyst:
Jamie Wood
Anheuser Busch
Odey analyst:
Alex Mackenzie
Page 18
Richemont
Odey analyst:
Bruce Hubbard
Contacts
Institutional
investors
UK
Europe
Asia
Client
Services
Orlando Montagu
o.montagu@odey.com
+44 (20) 7208 1427
Andrew Sandler
a.sandler@odey.com
+44 (20) 7208 1467
Lionel Dubois
l.dubois@odey.com
+44 (20) 7208 1425
Tricia Ho
t.ho@odey.com
+44 (20) 7208 1420
Andrew King
a.king@odey.com
+44 (20) 7208-1454
Fiona Jameson-Till
f.jameson-till@odey.com
+44 (20) 7208 1468
Sarah St.George
s.stgeorge@odey.com
+44 (20) 7208-1432
Odey Asset Management LLP
12 Upper Grosvenor Street, London W1K 2ND
Tel: 020 7208 1400 ~ Fax: 020 7208 1401
www.odey.com
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