Back in December of last year, Jefferies Equity research highlighted 15 European stocks for 2015 in their 15 for ’15 report. On June 23rd, Jefferies published a mid-year update on their 15 for ’15 report, discussing the performance of the firms, and replacing three stocks with new issues due to changes in analyst coverage.
Three European stocks names dropped due to coverage changes
The 15 European stocks originally suggested by the Jefferies analysts late last year have performed relatively well as a group. The stocks were broken up into five categories: Dividend/Cash Return, Restructuring/Portfolio Change, Growth, Unjustified Valuation Discount and Points of Inflection.
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Ian Rennardson and colleagues note they have removed three names from the 15 for ’15 list because of coverage changes. That means Nestle, Glanbia and Hargreaves Lansdown are all of the list.
Three fresh ideas for European stocks
By the same token, the Jefferies team is “introducing three fresh ideas that we believe can complement the remaining 12, bringing us back to full strength. In the Dividend/Cash Return group, we are adding Lafarge/Holcim, where pay-out ratio upside exists into 2016. In the Growth group, we are adding German payment service provider Wirecard and German fork-lift manufacturer Jungheinrich. While operating in very different industries, both benefit from the structural growth of the ecommerce market.”
Royal Bank of Scotland still a buy
The Royal Bank of Scotland has put in the worst performance of among the 15 for ’15, as it is down 11.3% over the last seven months in absolute terms. Jefferoes analyst Joe Dickerson “highlights the ‘restructuring fatigue’ being experienced by investors, but his view on RBS as an asymmetric risk/reward story with upcoming catalysts remains undimmed.”
Dickerson argues that while material restructuring charges are likely to remain an issue for at least another two years, in his view the timing of capital return has not changed significantly related to the additional CIB restructuring announced in February. Dickerson anticipates a small 9p/share dividend beginning sometime in in 2016.
He also points out that the “more immediate opportunity is for capital return via share repurchase (particularly of part of HMT’s stake).” He argues that share repurchases could occur from late-2015 through 2017, given RBS’s disposals and restructurings will produce 7.1 points of capital, or 70% of RBS’s estimated CET1 ratio build over 2015-2017. Restructuring is the key factor in RBS’s anticipated ed excess capital position.
Taking into account the impact of the fresh CIB restructuring on the balance sheet, Dickerson scaled back his earlier 530p price target to 510p back in March.