Author: Tristan d'Aboville

Tristan d’Aboville is an Executive Director, Research Analyst, managing the European Research Product. Mr. d’Aboville has more than 16 years of experience in equity research and sales. Since joining the firm in 2012, he has applied his client-centric style with analysts and portfolio managers, anticipating and exceeding their needs. He writes the well-received weekly European commentary, and follows it with a client conference call to discuss findings. Prior to William O’Neil + Co., Mr. d’Aboville was a top-producing salesperson at Kepler Capital Markets, formerly known as Julius Baer, and at Natixis Bleichroeder, covering European equities for large U.S. institutional clients. He started his career as an equity analyst at Aurel-BGC, later moving to Natixis Bleichroeder, where he became the lead analyst for the European Hotels, Leisure and Catering Sector. He was recognized as a Top Analyst for Predictability & Recommendations by AQ Publications in 2003. Extel named him one of the top three European analysts covering the business services and hotel & leisure industries. Prior to the securities industry, Mr. D’Aboville was an auditor with Arthur Anderson. Mr. d’Aboville earned a Master of Science in Managerial and Financial Economics from ISC Paris School of Management. Later, he studied Global Affairs at New York University. He is a Certified International Investment Analyst (CIIA). A sportif, Mr. d’Aboville enjoys kite surfing, sailing, skiing, tennis, chess, and spending as much of his free time as possible with his wife, young daughter, and son.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points:

Although European markets accumulated additional distribution days last week,
the move on Friday and today have allayed fears of a change in trend. The Stoxx
600 remains in a Confirmed Uptrend with three distribution days.

Earnings update: Q3 is still expected to be the bottom with earnings expected to
decline 4.7% y/y this quarter before bouncing back 4.8% in Q4 2019. Staples
remain the weak spot.

European Focus List update:

We removed Embracer Group (

) from the list and added Kering
(

‘>

) to the list.

Actionable ideas include: Sika (

), LVMH (

), Korian
(

), Aveva Group (

), Kering (

‘>

), Airbus (

),
Boohoo Group (

), Nibe Industrier (

), Halma Group
(

), DSV Panalpina (

), Gaivaudan (

), Stadler Rail
(

), and Teleperformance (ROFER.FR).

European Weekly Summary

Posted on by Tristan d'Aboville

I – European Markets Still in Confirmed Uptrend/Software & Luxury Emerging

  • The Stoxx 600 has been in a Confirmed Uptrend since October 15 with only two distribution days. This week, the market consolidated toward a new four-year high, closing flat after five consecutive weekly gains. Should it continue to consolidate next week, we see the 21-DMA as key support.
  • A majority of countries remain in a Confirmed Uptrend, although we noted a slight increase in the average number of distribution days from two to three. On Wednesday, we downgraded Spain to an Uptrend Under Pressure following a breach of its 50-DMA after adding a distribution day, bringing its total to five.
  • Although Financials, Autos, and Basic Resources have lagged this week, our sector rotation chart doesn’t suggest any dramatic change in the trend favoring value/cyclicals. In fact, our 12-month sector oscillation versus the Stoxx 600 suggests there is still room for those sectors to continue outperforming the market in the short term. Momentum (over four weeks) in Staple continues to deteriorate while momentum in leading sectors such as Transportation continues to improve.
  • We are seeing an interesting rotation within Technology: while momentum in Semiconductors continues to rise (top ideas include STM ( STM.IT, EFL ), Soitec ( SOI.FR, EFL ), and ASML ( ASML.NL, EFL )), Software is re-emerging. Several stocks, such Dassault Systems ( DSY.FR, EFL ) and Nemetschek ( NEMX.DE, EFL ), are now forming the right side of their current consolidation base on improving technical characteristics ( RS and A/D Ratings ). Aveva ( AVV.GB, EFL ) and SAP ( SAPX.DE ) are actionable after breaking out of consolidation.
  • A similar pattern is also visible among luxury names. After printing a solid Q3, which may have reassured the market in terms of the brand’s turnaround story, shares of Burberry are forming the right side of a double bottom (pivot at 2,292p). Kering ( KER.FR ) is breaking out of a 30-week consolidation and Hermes ( RMS.FR ) from a nine-week flat base. LVMH ( LVMH.FR, EFL ) is trading at an all-time high after breaking out of a 14-week flat base last week. 

European Weekly Summary

Posted on by Tristan d'Aboville

Europe is Playing in the Big Leagues

  • Amid challenging corporate earnings and economic metrics, one may struggle to justify the Stoxx 600’s strong performance. The index is up ~20% year-to-date, almost in line with U.S. counterpart the S&P 500 (up 22% year-to-date) and outperforming other regional developed and emerging indices (with the notable exception of China). Trading at a four-year high, it has only accumulated two distribution days in the past five rolling weeks. In other words, the strong momentum continues.
  • With the exception of the FTSE 100 (Rally Attempt), all developed European country indices are in a Confirmed Uptrend. Notably, all indices are now trading above their respective 50- and 200-DMA, and the average number of distribution days remains at an historic low of 2.3.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points from this week’s report:

Europe: Near 52-Week High But Lack of Breakouts

The Stoxx 600 is in a Confirmed Uptrend with two distribution days. The index recorded a third straight weekly gain this week and is now trading at a 22 months high. The iShares DJ Stoxx 600 weekly chart revels clear resistance at 39.6. Should the index breach that level, our bullish view would be confirmed.

A majority of European markets continued to trade constructively: this week, Norway was moved to a Confirmed Uptrend after breaching its prior rally high. Fifteen of the 18 indices we cover (including the Stoxx 600) are now in a Confirmed Uptrend with an average of two and half distribution days.

The lack of actionable ideas remains our primary concern. Over the past month, an average of 160 stocks broke out on a weekly basis (all market caps), versus a weekly average of 300 year-to-date. Value and cyclicals continue to outperform growth.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points from this week’s report:

 

Europe Back to a Confirmed Uptrend
  • The Stoxx Europe 600 Index gained 1.1% to 394.02 today, its highest level in the last ~17 months. The index breached its previous rally’s high and thus was moved to a Confirmed Uptrend from an Uptrend Under Pressure. We recommend increasing exposure to European equities.
  • A similar action occurred at the country level: Belgium, Spain, Italy, Sweden, and France were moved to a Confirmed Uptrend after breaching previous rally highs. These countries joined Germany, Portugal, and the Netherlands which recorded a follow-through day last Friday. We now have a majority of countries in a Confirmed Uptrend.
  • The number of distribution days has started to decrease (3.69 on average in Europe) and the number of stocks breaking out of consolidation has started to increase again.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points:

Status of 10 indices – including the Stoxx 600 – have been moved to Under pressure due
to the rising and clustering of distribution days.

Rotation in sectors continues to be a major headache for investors. The recent action in
the market seems to have put an end to the value versus growth trend that started in
August. We remain cautious given the lack of velar trend.

We didn’t add any names to the European Focus List, and removed Adyen ( ADYEN.NL ),
Richemont CFR.CH ) and Greggs ( GRG.GB ).

Oct 3, 2019 – Top Long and Short Luxury Picks with Tristan d’Aboville

Posted on by Tristan d'Aboville

Since we turned negative on Luxury industry in summer 2018, the S&P Global Luxury Index lost 23% from its June peak to December lows. Year-to-date, the index has regained momentum along with global equity markets but still trades 11% below its peak. Although we remain concerned about a likely slowdown due to industry headwinds that include ongoing trade tensions, Hong Kong protests, and currency volatility, we have slightly increased our exposure as valuation has become more attractive. In this webinar, Executive Director, Research Analyst Tristan d’Aboville will reveal our top long and short Luxury picks, selected using the powerful O’Neil Methodology.

Global Luxury Sector

Posted on by Tristan d'Aboville

Some highlights from this report:

 

  • Since we turned negative on the luxury sector in summer 2018, the S&P Global Luxury index has lost 22% from its peak to December low. It has rebounded 13% since, in line with the general market, but still trades 11% from its June 2018 high.
  • We do not recommend building positions in the sector yet. With the global luxury sector reliant on Chinese demand for more than one-third of sales, we believe most concerns we had (trade war, currency…) are still relevant.
  • Key indicators (Macau GGR, Swiss Watch Exports) in the luxury sector are not yet recovering.
  • We see a risk of corporate earnings forecasts being slashed and valuation multiples contracting further.
  • With the global luxury index following a typical two-year cycle and taking into account historical precedent, we see further downside potential despite recent underperformance.
  • We recommend defensive names: using our Proprietary Ratings and Rankings, LVMH ( LVMH.FR ) is one of the best plays.
  • Over the long term, we see Richemont as an appealing story on the back of  its YNAP acquisition, although we recognize that, in the short term, the stock may face pressure due to ongoing Hong Kong protests.
  • We are closely watching Burberry ( BRBY.GB ) as a potential turnaround story.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points:

The Stoxx 600 has been in a Confirmed Uptrend since last week but has already picked
up two distribution days, giving us little conviction in the current trend. We believe
that the probability of value outperforming growth in H2 2019 is high (see last week’s
report)

Pockets of strength among growth sectors remain scarce but include aerospace and
defense, building materials/heavy construction, flavor & fragrance, and tower
telecom operators.

We added JD sports (

) to our Focus List this week.
Focus List name Inwit (

) is actionable.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points:

The iShares DJ Stoxx 600 is still in a Rally Attempt. The lack of trend in Europe is still
concerning since leadership has not yet emerged.

There is no fundamental reason to believe that the short‐term re‐rating in Financials will
persist. However, the trailing 12‐month oscillation of banks versus the Stoxx 600 remains at
a historical low supporting a re‐rating of the sector, especially in a scenario where investors
switches focus from Growth to Value.

In this scenario, Staples will remain the weak spot in our view. In fact, we are starting to
see strong distribution among large Staples names, such as Nestle (

), Diageo
(

), Remy Cointreau (

), and Reckitt (

), among others.

We have not made any changes to our European Focus List this week. We reiterate our
conviction on Boohoo (

) added last week to our Focus List.