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

The Stoxx 600 regained some positive momentum this week since it bottomed on September 7, regaining its 50- and 200-DMA for the first time since it undercut these levels in August. We do not, however, recommend jumping into this trend until further confirmation comes in place in the form of a follow-through day, and would be selective when building new positions.

Most markets were moved back to a Rally Attempt this week and the U.K. was moved to a Confirmed Uptrend after the FTSE 100 recorded a follow-through day on September 24, aided by the strong performance of the Basic Material and Energy sectors (27% of the index).

 The number of stocks breaking out remains at a historically low level (see page 4) but has started to rise this week in tandem with our number of recommendations. We added four names to our Focus List in the past five days: Grieg Seafood (GSF.NO ), Technogym ( Ex-EFL, TGYM.IT ), Komax ( Ex-EFL, KOMN.CH ), and Aker BP ( AKEP.NO ).

Our Focus List continues to be a source of outperformance, up 8.76% versus -0.98% for the iShares DJ Stoxx 600. The number of actionable ideas has been increasing this week. On top of the new additions, we recommend building positions in Thales ( CSF.FR ), Amplifon ( AMP.IT ), and Worldline ( WLN.FR ). We are reviewing these stocks and their respective Datagraphs in this report. 

European Weekly Summary

Posted on by Tristan d'Aboville

Key points:

We have little faith in the recent market rebound. The Ishares Dj Stoxx remains in a Rally Attempt.

This is largely reflected in the historically low number of stocks on our Focus List. Only three names were added in the past month ( ADYE.NL, NOFI.NO, and DNO.NL ).

The best ideas to focus on this week include:

Thales ( CSF.FR, Focus List ) and Ashtead ( AHT.GB, Focus List ) in Capital Equipment

Dassault System ( DSY.FR, Focus List ) and Nemetschek ( NEMX.DE, Focus List ) in Software

We recommend building position in tech names related to the gaming industry such as Keywords Studio ( KWS.GB, Focus List ) and Evolution Gaming ( EVOG.SE, EFL name )

We again reiterate our bullish call on Healthcare.

European Weekly Summary

Posted on by Tristan d'Aboville

Key Points

European markets: the lack of direction and leadership offer very little to investors. The low number of new ideas added to the portfolio this month ( only two:DNO.NO and NOFI.NO ) reflects our current bearish view.

Longs:  Health Care remains the “sweet spot” in our view. Top Pick: Straumann ( STMN.CH ). Among the Focus List names, Sixt ( SIX2.DE ) and Keywords Studios ( KWS.GB ) are actionable.

Shorts: we reiterate our “Short” idea Renault ( RENU.FR ) and added Unicredit ( UCG.IT ) and Dufry ( DUFR.CH ) to the list.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points:

  • We reiterate our cautious view of European equities (index in a Rally Attempt) and recommend a selective approach to building positions in this environment given the lack of clear leadership.
  • Although our Focus List (O’Neil recommendations) continues to outperform its benchmark (+9.10% year‐to‐date, versus 0.10% for the Ishares Dj Stoxx 600), the number of actionable ideas remains low. Straumann (

    ) is our top idea this week.

  • Update on short ideas: Removing Adidas (

    ) from our list of shorts. Maintaining Solvay ( SOL.BE ), Renault ( RNO.FR ), Essity ( ESS.SE ), and Siltronic ( WAGX.DE ) on the list.

European Weekly Summary

Posted on by Tristan d'Aboville

Key Points

The IShares Dj Stoxx600 ( EXSA.DE ) has been trading constructively since it bottomed on June 27. The index has regained its 50- and 200-DMA, but the absence of a follow-through day pushes us to remain cautious. It remains in a Rally Attempt.

Our lack of conviction is also driven by current rotation in leadership.

Momentum among long-term underperforming sectors Financial and Transportation, both displaying average/poor growth characteristics relative to the market, has been improving over the past four weeks.

Among Financials, our recommendations (Focus List) are concentrated in the Fintech/Payment industry. Wirecard ( WDIX.DE ) and Simcorp ( SIM.DK ) are too extended, so we recommend looking at Wordline ( WLN.FR ). Shares are consolidating and trading near the pivot ( €55.15 ). Ex-EFL name NOFI ( NOFI.NO ) is actionable after breaking out of a 13-week flat base.

We do not recommend any stocks in Transportation. DSV ( DSV.DK ) is actionable after the company reported beating figures in Q2 driven by impressive air freight volume growth.

We are concerned that weakening momentum in Autos is spreading to other Cyclical industry groups, especially luxury names.

Former leading stocks and EFL names Kering ( KER.FR ) and Moncler ( MONC.I T) are now trading below their 50-DMA and 12% on average from their recent top, despite releasing strong Q2 earnings.

Other Cyclical names on our Focus List have similar characteristics: Technogym ( TGYM.IT ) and Puma ( PUMX.DE ) are trading below their respective 50-DMA. We recommend holding those names unless they break below key support, i.e. their respective 200-DMA.  Basic-Fit ( BFIT.NL ) is re-gaining its 50-DMA today, after the company reported 22% and 26% revenue and Ebitda growth respectively in H1.  

We reiterate our bullish view on Healthcare. The sector displays leading characteristics, with 76% of stocks in the group having their 50-DMA in an uptrend. The current average RS Rating of the sector is 66 and has risen the last four weeks from 62 (99 being the best).

From our Focus List, Straumann ( STMN.CH ) is actionable. We recommend holding Vifor ( VIFN.CH ), Swedish Orphan ( SOBI.SE ), and Ipsen ( IPN.FR ). 

Global Lodging and Gaming Sector

Posted on by Tristan d'Aboville

Global Lodging Sector

Although several long-term growth drivers may still play well for the lodging industry, including rising disposable income, investors should not forget that the sector is highly cyclical. In a downturn, the sector tends to significantly underperform the market.

We recommend massively underweighting the sector. After an almost nine-year uptrend, one of the longest legs in the cycle in the past 30 years, the lodging industry is at a turning point, with supply growth catching up to eroding demand.

The sector’s valuation is stretched and, with decelerating growth ahead, we do not expect multiple expansion, but rather contraction.

We currently do not have any names from the industry on our Global Focus List.

We see STAY among the potential most defensive plays in the sector on cash return to shareholders.

We like HTHT on the back of its expansion in China and its transformation plan toward a more asset light model. We are looking for the right entry point.

We recommend BEL as a short. The Company displays poor fundamental characteristics. It consistently missed estimates the past year and its 2020 target is at risk.

 

Global Gaming Sector

In Macau, since our last update, we have removed Galaxy Entertainment ( PIPE.HK ) and Sands China ( SNDC.HK ) from our Focus List after a combined average performance of 15%.

Sentiment in the region has weakened after disappointing GGR growth fig­ures and increasing fears of a regulatory crackdown.

We do not have exposure to the industry anymore.

In the U.S., we believe that gaming industry performance will continue to be driven by regional players. However, the lack of growth characteristics going forward remains a major obstacle to adding these stocks to our Focus List.

We are closely watching BYD.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points:

The Stoxx 600 is attempting to rally, but it is still too early to turn positive. In order for us to move bullish, we are looking for a follow-through day, rising volume, and for leadership to emerge. We are not there yet and the index remains in a Rally Attempt.

Our Focus List is a good indicator of market health. The decreasing number of ideas reflects our cautious stance toward European equities. We have been lightening up our exposure to Cyclical and, adversely, strengthening our exposure to Health Care.

Actionable Focus List ideas in Healthcare include: Ipsen ( IPN.FR ) and Swedish Orphan ( SOBI.SE )

The new format for this report introduces a list of Shorts displayed in the Sector Score Cards. It Includes:

Solvay ( SOL.BE ): Solvay’s three divisions suffering from adverse FX and higher raw materials, offsetting volume growth.

Adidas ( ADSX.DE ): Topping characteristics. / Short term momentum eroding / (Too) high expectations from the street.

Renault ( RENU.FR ): Momentum deteriorating due to escalating trade tensions between the U.S. and China / Negative newsflow surrounding the alliance between Renault and Nissan / Highly exposed to EM currencies.

Essity ( ESSI.SE ): Raw material price increases, particularly pulp, putting pressure on margins / Aggressive expectations from sell-side analysts.

Siltronic ( WAFX.DE ): Ongoing concerns over iPhone production adjustments, falling NAND prices, and softer demand in the cryptocurrency space.

Nestle India

Posted on by Tristan d'Aboville

Key points from the report:

Thanks to a three-year strategic plan that focused on rebuilding its brand, expanding into other categories, and accelerating the launch of new products, Nestle India has been rising from the ashes of a scandal in 2015 involving its major brand, Maggi.

This strategy translated into 10%+ revenue CAGR and a 47% EPS CAGR between 2015 and 2017; Nestle India’s operating margin and ROE rose back above 18% (versus 15% in 2015) and 37%, respectively, during that period. The stock now has an EPS Rank of 77 and an SMR Rating of A.

The pursuit of this strategy, which includes the decision to enter the Indian breakfast segment this year, will lead to a mid-term double-digit revenue CAGR, driven by volume. In an environment of lower raw material costs, we see EPS growing at a high double-digit CAGR the next three years.

With the Indian market under pressure, we recommend shifting focus toward more defensive sectors, such as Staples. The stock is not cheap, trading at a 60x PE forward, but is in line with its local peers, including Focus List name Britannia (BRI.IN).

After a steady rally along the 10-WMA, shares are currently trading 3% off 52-week highs, with the first level of support at INR 9,650. The stock has robust and stable technical characteristics, with RS and A/D Ratings of 89 and B+, respectively.             

We recommend that investors add to existing positions.

Consumer Goods Review

Posted on by Tristan d'Aboville

I – FOCUS LIST UPDATE: Global market weakness has improved short-term momentum among global Staples, as money takes flight to safety.

This is reflected in rising average RS Ratings of the Tobacco, Soap and Cleaning Prep, and Food and Beverage Non-Alcoholic sectors.

On the other hand, the long-term outperforming Cyclicals sector has seen short-term momentum erode.

Since May, our number of recommendations among Consumers has slightly decreased to 27 stocks. We have been increasing exposure to Staples, and, conversely, decreasing exposure to Cyclicals.

 Among Cyclicals, in the past two months, we have removed seven stocks: Trigano ( TRI.FR ), Sands China ( SNDC.HK ), Galaxy Entertainment ( PIPE.HK ), Localiza ( LOC.BR ), CVC ( CVC.BR ), On The Beach Group ( OTB.GB ), and Arezzo ( ARZ.BR ). We added only one stock: Basic-Fit ( BFIT.NL ).

 We have been increasing exposure to Staples, recently adding McCormick (

), Yihai Intl. Hldg. ( YIHA.HK ), and Weight Watchers (

).

 Among the 27 recommendations (see list at end of report), half of our list is now made up of Staples names, historically a high proportion, reflecting our concern about the health of the market as we move into summer.

 

II – SHORTS IDEAS: Adding Adidas to our laggards list/maintaining Essity ( ESSI.BE )

Adding Adidas ( ADSX.DE; €38.33B market cap; $188m ADV ) to our “Short list”, second largest retailer of athletic shoes and apparel in the world. Stock displays “topping” characteristics.

Essity (ESSI.SE; $15.6B market cap; $34.6M ADV), a global hygiene and health company headquartered in Sweden, is part of the hygiene and forest products company SCA, spun off in 2017. Its products portfolio includes tissue paper, baby diapers, feminine care, incontinence products, compression therapy, orthopedics, and wound care. Momentum is likely to deteriorate ahead of Q2 results on July 19 due to raw material price increases.

 

III – FOCUS EUROPE: How to navigate a weak market? Focus on RS lines at all-time highs and money inflow.

With a majority of European markets in a Downtrend, we have been pushing investors to focus on defensive sectors such as Staples and, in particular, stocks with RS lines hitting new highs with money inflow (A/D Rating >0). Although we do not have any Staples on our European Focus List, we have identified three stocks that meet these criteria. We believe they may continue to outperform their respective benchmarks if weakness persists in the region.

Davide Campari ( CPR.IT ): Campari Group is a major player in the global branded beverage industry, with a portfolio of more than 50 premium and super premium brands, marketed and distributed in more than 190 countries worldwide.

Wessanen ( BOWE.NL ): The food company has a portfolio of leading organic brands holding a first or second position across key European markets.

Cranswick ( CWK.GB ): Cranswick produces fresh pork, gourmet sausages, cooked meat, air-dried bacon, premium cooked poultry, charcuterie, sandwiches, and gourmet pastry products.