A December 8th report from Jefferies Equity Research Europe highlights 15 European stocks that offer significant potential for investment return in 2015. The Jefferies analysts break the 15 companies down into five macro themes: Dividend/Cash Return, Restructuring/Portfolio Change, Growth, Unjustified Valuation Discount and Points of Inflection.
Five themes for European stocks in 2015
Dividend/Cash Return:
Analyst Mark Cathcart believes Axa SA (ADR) (OTCMKTS:AXAHY) (EPA:CS) has room to boost its pay-out ratio and still pursue growth opportunities, as the top play in a broad sector thesis around emerging capital freedom for large insurers. Joe Dickerson focuses on the idiosyncratic risk at Royal Bank of Scotland Group PLC (NYSE:RBS) (LON:RBS), and argues a dividend will return well ahead of consensus expectations. Alex Howson believes Nestle SA (VTX:NESN) (OTCMKTS:NSRGY)’s ability to return cash to shareholders will increase as it moves out of a period of growth-fueling capital expenditures.
Restructuring/Portfolio Change:
Jefferies analyst Jerry Dellis says BT Group plc (ADR) (NYSE:BT) (LON:BT.A) is a Buy and sees the potential for the firm to expand its product offering with the acquisition of a UK mobile business. Ian Rennardson anticipates that Accor will move forward with restructuring its low-margin, capital-intensive HotelInvest business to create value with an eye on a possible break-up. Jeffrey Holford argues that pharma giant Bayer AG (ETR:BAYN) (OTCMKTS:BAYRY) can create value from a portfolio shift with the exit from Material Science, and models accretion scenarios from an expanded Animal Health offering as part of a possible sector-consolidating move by Zoetis Inc (NYSE:ZTS).
Growth:
Jason Streets argues that Hargreaves Lansdown PLC (LON:HL) can continue its growth as the company moves past the effects of RDR2 and new opportunities develop from ongoing regulatory decisions. Glanbia is Alex Howson’s choice as a compelling value growth story that will benefit from a strong position in Performance Nutrition. Mark Irvine-Fortescue says that Merlin Merlin Entertainments PLC (LON:MERL) can improve on its No. 2 global position in theme parks and attractions, and is looking for solid organic growth as well as the possibility of M&A activity.
Unjustified Valuation Discount:
Jerry Dellis argues that Orange’s valuation with the sector is unwarranted given improving fundamentals, and sees significant upside as the discount narrows. Omar Fall says the business mix and sustainable return at Credit Agricole SA (EPA:ACA) (OTCMKTS:CRARY) mean it is currently undervalued both relative to peers and on an absolute basis. Justin Jordan highlights misperceptions concerning the positive developments in Smurfit Kappa, which has left the share price at a notable discount to its Paper and Packaging peers among European stocks.
Points of Inflection:
Giles Thorne is anticipating a crucial year for Inmarsat as its crucial GX platform finally achieves revenue visibility and the sector moves beyond sequester impact. Martin Brunninger expecs resolution of the FDA overhang and a turning point in margins to boost the share price at Getinge. Despite lower oil prices, Jason Gammel argues that BG Group has turned the operational corner as QCLNG comes onstream and Brazilian production increases, and highlights that NPV is likely to move up nicely in 2015.
