eurostocks 201102 kurz final - larrainvial.com · *** sources: eurostat, goldman sachs estimates ....

European EquitiesOutdated Model or Innovation Center?

Joachim Schallmayer, Senior Portfolio Manager

2

Agenda

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2

3

4

Corporate backdrop

World Market Leaders

Valuation backdrop

Sovereign backdrop

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Agenda

1

2

3

4

Corporate backdrop

World Market Leaders

Valuation backdrop

Sovereign backdrop

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Cyclically Gross GeneralAdjusted Budget Government DebtDeficit (% GDP)** (% of GDP)***

Germany* -1.8 73.2France -6.2 77.6Italy -3.3 115.8Spain -9.6 53.2Netherlands -3.6 60.9Belgium -4.5 96.7Austria -2.4 66.5Greece -14.1 115.1Finland 0.3 44Ireland -11.4 64Portugal -8.3 76.8Slovakia -6.4 35.7EMU-Average(PPP Weighted) -4.9 78.9UK -8.4 68.1USA -8.0 83.9Japan -5.5 218

‡ Sovereign funding is an issue globally

‡ Other developed economies starting from a similar or worse level

‡ Reduction of deficits and austerity measures needed in most parts of the developed world

‡ Several European countries announced and implemented a first set of measures

Global Competitiveness Index

Europe: Sovereign backdrop

Crisis put into perspective

Budget Deficits and gross financial liabilities as % of GDP

Source: Goldman Sachs*Countries listed according to their share of Euroland GDP** Sources: European Commission, CBO, OECD, HM Treasuries*** Sources: Eurostat, Goldman Sachs Estimates

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Europe: Sovereign backdrop

Crisis put into perspective

0

200

400

600

800

1,000

1,200

09/09 01/10 05/10 09/10 01/11

Greece Portugal SpainEgypt Indonesia Philippines

‡ Intensive market speculation

‡ Extreme risk perception

‡ Positive: market speculation put pressure on governments to react immediately and in a comprehensive manner

Global Competitiveness IndexCDS Spreads

Source: Bloomberg

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Agenda

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2

3

4

Corporate backdrop

World Market Leaders

Valuation backdrop

Sovereign backdrop

8 Source: Barclays Capital and own calculations

‡ Significant debt reduction during the last years with trends set to continue

‡ Strong cash generation

‡ Flexibility to increase the payback to shareholders through dividend increase or buyback

‡ Provides european companies with strategic flexibility

Europe: Corporate backdrop

Excellent balance sheet quality

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

2000 2002 2004 2006 2008 2010e2012e

0,0

0,2

0,4

0,6

0,8

1,0

Net Debt / Ebitda Net Debt / Equity (rhs)

Corporate deleveraging trend expected to continue

9 Source: Barclays Capital and own calculations

‡ Companies operate on a high level of capital efficiency and profitability

‡ Efforts of past restructurings now become very visible

‡ Strong signal of managerial capabilities of european management teams

Europe: Corporate backdrop

Excellent efficiency

1998 2000 2002 2004 2006 2008 2010

Asset Turnover (rhs) EBIT Mgn.

4%

6%

8%

10%

12%

14%

16%

1,0

1,1

1,2

1,3

1,4

1,5

Profitability safeguarded during the crisis

10 Source: Barclays Capital and own calculations

‡ Wages remain restrained in the european environment while producer prices are on the rise

‡ European companies continue to gain competitiveness

Europe: Corporate backdrop

Continous productivity enhancement

0%

1%

2%

3%

4%

5%

6%

7%

1997 1999 2001 2003 2005 2007 200985

90

95

100

105

110

115

Europe hourly earnings % y/yEurope PPI index (rhs)

Hourly earnings and Producer Prices

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Significant part of European company revenues generated in EM

Europe: Corporate backdrop

European Products in strong demand

Source: Barclays Capital

0%

10%

20%

30%

40%

50%

60%

70%

Met

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Har

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Bev

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Che

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Luxu

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HP

C

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Ser

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Ban

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Aut

os

Average % of total EPS from China for Daimler & BMWEstimated EM exposure for European Sectors (%)

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Agenda

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2

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Corporate backdrop

World Market Leaders

Valuation backdrop

Sovereign backdrop

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World market leaders out of Europe

Typical Stocks

‡ LVMH

‡ Pinault Printemps Redoute

‡ Luxottica

‡ Richemont

‡ Swatch

Luxury

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World market leaders out of Europe

Typical Stocks

‡ Daimler

‡ BMW

‡ VW

‡ Porsche

‡ MAN

Autos

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World market leaders out of Europe

Typical Stocks

‡ Siemens

‡ ABB

‡ Philips

‡ ASML

Industry

Source: Photo ABB, Philips, Tognum AG

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World market leaders out of Europe

Typical Stocks

‡ Danone

‡ Henkel

‡ Nestlé

‡ Lindt & Sprüngli

Consumer

Sources: Danone, Nestlé, Henkel, Lindt & Sprüngli

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Agenda

1

2

3

4

Corporate backdrop

World Market Leaders

Valuation backdrop

Sovereign backdrop

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European Equities – Valuation backdrop

Attractively valued on multiples

P/E-Ratio* Price / Book*

* MSCI EuropeSources: Factset

12M-Forward PE 12M-Trailing PE

0

5

10

15

20

25

30

35

40

19701976198219881994200020060

1

2

3

4

5

6

1970 1976 1982 1988 1994 2000 2006

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MSCI Europe: Historic EPS Growth with Future Estimates

Sources: IBES

European Equities – Valuation backdrop

Attractive earnings growth outlook

-23%-20%

-21%

26%

36%

13%4%

18%

-9%

6%4%

-19%

-4%

44%53%

25%

6%

-24%-17%

13%15,3%

39%

24%

-40%

-20%

0%

20%

40%

60%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

bottom-up estimates

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Wrap up

Stable political environment

Gearing to world economic growthespecially to strong growing BRIC economies

Corporates that are in excellent shape

Very supporting valuation background

No listed alternatives to a lot of these world market leaders

Thank youfor your attention!