Sweden Equity FVMR Snapshot
Hello to all my friends in Sweden!
Up-and-Coming Small- and Mid-cap Portfolio Managers #MICUS (Morningstar Conference)
Of course, as some of you know, Alex who works with us ? my colleague and partner ? is from Sweden.
Let’s look at Sweden versus the world.
Fundamentals: Expect high payouts
The first thing we can see is that the ROE of Swedish companies is about in line with the rest of the world.
Dividend payout ratios are much higher, which is nice. They pay out a lot of dividends.
Valuation: In line with global average
The PE is about in line with the world ? same with price to book.
Momentum: Earnings expected to remain flat
What we can see is that, right now, the EPS growth estimates by analysts are about 1% versus the global average of 13%. We see a little bit slower growth there, and you’re paying a slightly higher multiple.
Volatility: Sweden is low volatility
The momentum in share price has been pretty strong ? up 15% over the last year ? and the gearing of companies is relatively similar to the rest of the world. The gearing level is slightly higher than the world but not by much.
Next is price and what we can see is that the volatility of the price is about 14% versus 9% here.
Sweden by Sector
Now, let’s look at a few sectors and see what we got here.
The first thing we want to look at is the energy sector, which we can see has a super high ROE. But why is that?
That’s because if we look at the gearing factor right here, it probably means that there’s a distressed level of equity ? a tiny little bit of equity.
So the companies are seeing that their EPS is growing by about the 20% to 22% forecasted by analysts, but they’re rebuilding their equity base.
Though that ROE seems very high, the reality is that it’s actually an exceptional recovery right now.
Now we can see that if we look across the spectrum here, the consumer discretionary companies traded at about 26x.
The cheapest companies are those in materials and financials sector. Financials are usually pretty cheap.
A 26% ROE is leading to about a 10% EPS growth. And with that EPS growth, you’re going to pay about 17x, so it’s about in line with the market.
I would say consumer discretionary looks like a pretty good sector.
What we can see though is that share price is being hit. Right now, it seems to be a bit out of favor. Gearing is very low for the sector and volatility is very high.
What you can see as the most expensive sector in the market is the information technology sector. The problem is that there’s not much growth. There’s good recovery expected, but I would also say that these companies are sitting on a lot of cash and volatility is very high.
So it seems to me that they’re a bit expensive for what you’re getting out of them.
This gives a rough idea of what’s going on in Sweden as far as fundamentals, valuation, momentum and risk.
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