In a report published on July 6th, Jefferies Research Europe Jefferies highlights 21 Buy-rated stocks from eight different stock markets that have all pulled back significantly from higher share prices. Jefferies analyst Omar Fall and colleagues suggest that these firms offer a notable opportunity for investors with medium- to long-term time horizons.
21 European stocks to consider
The retrenching European stocks that Fall et al. recommend are megabank Deutsche Bank, elevator maker ThyssenKrupp, NORMA, GEA, clothier Hugo BOSS, Wirecard, Lafarge/Holcim, Accor, Carrefour, SES, Autogrill, Vopak, Jeronimo Martins, CTT, auto manufacturer Volvo, Getinge, Smurfit Kappa, Aviva, pharma company AstraZeneca, IAG and Inmarsat.
The analysts point out that many European stocks have retreated from highs earlier in the year as macro events have led to questions regarding the thesis of a broad-based recovery. Moreover, Greece returning a convincing 61% ‘No’ vote in its referendum on a deal with Europe assuring further austerity has led to uncertainty around what happens next and how the nation will handle its debt obligations. Questions continue to swirl around Greece’s continued participation in the euro. In Asia, weak economic data out of China is hurting sentiment and geopolitical tensions are high in several global hotspots.
The one certainty in these conditions is that market volatility will be seen in the near term. Fall and team highlight that this means investing opportunities are presenting themselves for those willing to take a long-term view. They have identified 21 Buy-rated European stocks that have dropped notably below year-to-date highs where things continue to look rosy a year or so out into the future.
The Jefferies team fleshes out their argument: “On average, these stocks have dropped 13.5% from YTD peaks. In spite of this, only three of the 21 are actually down YTD even after recent market weakness. We are reassured that they have reached significantly higher levels already in 2015, may return to them over time, and potentially have upside beyond if they deliver on expectations.”
More on selected Jefferies Buy-rated European stocks
Deutsche Bank — Fall et al. point out that DB has been impacted by negative sentiment around the vagueness of the recent strategy update, as well as uncertainty over Greece hurting finance-related European stocks. In the report they note: “DBK trades at 0.7x TBV for a consensus 2017 RoTE of 8.5% (7x ‘17E earnings). We value DBK on a Gordon Growth model with a sustainable RoTE of 10%, a cost of equity of 11% and terminal growth of 2%, giving a price target of €37.”
NORMA — The analysts argue industrial and automotive part group NORMA shares have pulled back due a stronger euro and softer Chinese car sales, both of which are likely to reverse. They say: “NORMA trades at 10.2x 2016 EV/EBIT vs 11x for the European Cap Goods sector. Its -12% performance since the SXXP peak in April has been a pure derating and eliminated the group’s sector premium. We value NORMA on FY16 multiples of 11.8x EV/EBIT and 16.9x P/E, which are a 10% premium to the sector.”
Accor — Hotel firm Accor is a restructuring play: “We use an EBITDA-based SoTP approach to valuation, with a €55 price target driven by a 13x 2016e HotelServices multiple and a 10x for the HotelInvest business (in line with the asset-heavy peer group). Assuming a successful restructuring results in materially higher EBITDA, and applying the same 10x multiple results in our blue sky €65-€70 PT.”
Immarsat — Fall and team argue that mobile data services provider Immarsat has several advantages over its rivals. “Given GX and the EAN are not yet operational, short-term multiples are eye-watering: 2015 PE of 33x, 2014 PE of 24x. We value Inmarsat using a DCF-based SoTP. Our 1,050p price target is based on conservative assumptions for the ultimate performance of the business. We see a blue sky valuation of almost £15/shr.”
