JPM_Europe Year Ahead 2019_watermark
.pdf
vk.com/id446425943
Mislav Matejka, CFA |
Europe Equity Research |
(44-20) 7134-9741 |
03 December 2018 |
mislav.matejka@jpmorgan.com |
|
Small/Mid-Cap Strategy
Eduardo LecubarriAC
(44-20) 7134-5916 eduardo.lecubarri@jpmorgan.com J.P. Morgan Securities plc
Nishchay Dayal
(91-22) 6157-5117 nishchay.dayal@jpmorgan.com J.P. Morgan India Private Limited
Siddharth Dash
(91-22) 6157-4102 siddharth.x.dash@jpmorgan.com J.P. Morgan India Private Limited
Rushit Mehta
(91-22) 6157-3711 rushit.mehta@jpmorgan.com J.P. Morgan India Private Limited
Click HERE to be added to our email distribution (1/wk at most), or send an email to eduardo.lecubarri@jpmorgan.com
Top Strategy Picks for 2019 from our SMid Radar (model portfolio):
Investment Opportunities
Arrow Global |
ARW LN |
ASTM |
AT IM |
Cairo Communication |
CAI IM |
Cineworld |
CINE LN |
GN Store |
GN DC |
M aire Tecnimont |
M T IM |
Nexans |
NEX FP |
Petrofac |
PFC LN |
Scandi. Tobacco |
STG DC |
Smiths Group |
SMIN LN |
|
|
Stocks to Avoid |
|
Hays |
HAS LN |
Lanxess |
LXS GR |
Pagegroup |
PAGE LN |
Randstad |
RAND NA |
Rightmove |
RMV LN |
Wallenstam |
WALLB SS |
Small/Mid-Cap Strategy Outlook
2019: Many risks, some hopes, and a reality that will make any potential rally very short lived…
The contrarian cautious stance that we held on Small/Mid-Caps during the whole of 2018 paid off, with most SMid-Cap indices down for the year. As we head into 2019, we still see the glass half empty at a time when most market participants are still trying hard to see it half full (note that consensus is nowhere near bearish yet… after all, most SMid indices around the world are still down less than 15% from their all-time highs, <10% YTD, and well above their 2007 peaks!).
Could we see a rally in 2019? SURE…
We believe a short-term equity rally in December of 2018 or early 2019 could very well take place driven by any number of the following: 1) a supportive reality of interest rates being still low, profits still growing, and valuations not being too demanding; 2) a highly likely potential ceasefire or even an agreement on trade that could ease geo-political tensions; 3) a far less likely potential stabilization or even weakening of the USD which could give EMs a breather; 4) a very unlikely potential rebound in capex as most of the world is running on capacity utilization that lies in the top tercile of its historical range (unlikely in our view because Capex has rallied smartly since 2009 and there is a widespread belief that we are at a late stage of a cycle).
… but it would be shorter lived and weaker in magnitude than many expect.
While the correction seen in Small/Mid-Caps (and equities in general) since October has made valuations less demanding (Figure 2) and improved the technical backdrop, it is important to note that a rally of just 15% from current levels will undo all this, leaving most SMid-Cap indices near all time highs, and valuations also near peaks.
Moreover, we note that any acceleration in economic momentum or even the prospect of a longer-than-expected economic upcycle, would most likely continue to push commodities, wages, inflation, and interest rates higher, farther flattening the yield curve... all of which would undoubtedly put further downward pressure on corporates margins, earnings growth, and thus investor sentiment.
And all while most of the drivers of our cautious YTD stance are still in place today:
Indeed, many of the risks that we have highlighted during 2018 should continue to put downward pressure on SMid-Caps during 2019: 1) real GDP growth and thus revenue and earnings growth should continue to decelerate (macro economic momentum is clearly pointing that way despite the bullish sentiment YTD from corporates and consumers alike...Figure 3); 2) Real house prices are a ticking bomb as they are at or above 2007 bubble highs already in most DM countries (and only 12% away in the US); 3) Credit should continue to deteriorate (there is more debt, worse debt, and all within a less liquid debt market now than at the peak of 2007)… with US High Yield is already showing warning lights; 4) with no upside to consensus estimates for 2019 which are calling for unachievable growth for SMid-Caps (Figure 5); 5) and all as we start the 11th year of this bull equity market, with many data points looking very toppy, and the average SMidCap in the world having already doubled EBITDA from the peak of 2007.
71
vk.com/id446425943
Mislav Matejka, CFA (44-20) 7134-9741
mislav.matejka@jpmorgan.com
Europe Equity Research
03 December 2018
HOW TO POSITION?
With all this in mind, we stick to our 2018 cautious stance, recommending investors focus on SMid-Caps with solid balance sheets, strong FCF generation, and below market beta operations… with a N stance on Europe/UK, an UW on US SMid, and a preference for EMs and Japan. And all with 6 of our thematic screens offering investors no shortage of long and short ideas within the vast universe of PanEuropean and Global SMid-Caps.
Remain OW SMid vs Large across Pan-Europe (Figure 6). SMid-Caps should underperform during a recession-linked downturn in equity markets, but not by much while they have historically outperformed Large-Caps handsomely up to the pre-recession equity market peak and from the trough. Since picking the very peak and the very trough of equity markets around a recession is highly unlikely, investors trying to time them are likely to sell out of SMid a bit too early, and switch back into them a bit too late, thus losing more alpha vs Large-Caps than they hoped to make during the downturn. In addition, SMid-Caps continue to benefit from a long list of structural tailwinds, while still trading at a discount to Large on most metrics in Cont. Europe and in other regions of the world (ex UK).
By Style….(Figure 7) We stick to our 2018 OW on "Quality Value" (high FCF Yld stocks with solid balance sheets), which delivered big alpha YTD, while the relationship between high ROE, high EBITDA Margin, and performance started to break down as risk aversion grew after the summer. We note that our "Quality Value" approach has also proven to be the best and most consistent source of style alpha among SMid-Caps worldwide during the last 3 US recessions.
By Country…. (Figure 8) We look for safety in balance sheets and EM exposure. Thus, we stick to our OW on Switzerland as SMid-Caps in that country offer a safe-haven within Europe (limited currency risk, low corporate leverage, welcoming attitude towards foreign capital), and one of the most appealing growth/value proposition (a trailing FCF Yld of 3.3% and one of the highest exposures to faster growing EMs). We are also upgrading German SMidCaps to OW from UW as they continue to benefit from one of the highest exposures to EMs, one of the strongest balance sheets, and a much improved valuation following their underperformance in 2018.
By Sector… We continue to side against the 2018 bullish consensus view on Financials and cyclicals in general. Sector allocation is a macro call and thus one that is unnecessarily risky at this stage of the cycle. We continue to downplay sector allocation in favor of style allocation and stock selection (focus on high FCF Ylds, solid balance sheets, and below market beta operations).
Outside of Europe.... We remain UW US SMid-Caps (facing tough comps in 2019, the most demanding consensus estimates, and the least accommodative monetary policy, and all while trading at a premium to SMid worldwide after having rallied the most, within an economy that has travelled the farthest into this economic cycle). We remain OW Asia ex-J (with consensus now assuming an all-out trade war between the US and China, and the recent correction offering a better entry point into a superior structural growth equation, trading at a discount to US valuations, with a less leveraged corporate balance sheet, and a positive current account). We remain OW LatAm (much appears to be discounted already). And remain OW Japan (a value play, with no corporate debt, a history of delivering double digit earnings growth in the face of anemic real GDP growth, and benefiting from a stronger US$).
72
vk.com/id446425943
Mislav Matejka, CFA |
Europe Equity Research |
(44-20) 7134-9741 |
03 December 2018 |
mislav.matejka@jpmorgan.com |
|
Thematic Screens (Figure 1): among our thematic screens shown in the table below, we would highlight the following 6 for 2019 (these can help you filter the whole universe of SMid stocks in the world (within and outside of JPM's coverage) and can be downloaded in excel from our morganmarkets analyst page).
LONG SCREENS: “Oversold Gems” (potential overreactions in the recent equity market downturn that can provide good entry points into stocks that can also offer a safe haven during the next recession — stocks down >20% in Oct 2018 (>2x the market drop) which outperformed their regional SMid index during the last recession-linked downturn (Jun 1st, 2006 to Mar 1st, 2009)). “Surf and Turf” (consistent EBITDA positive operations through the cycle with more than a 25% discount to the market at present on FCF Yld), “Bulletproof Vests” (stocks that outperformed in 2007-2009 and are trading at a discount to their industry at present, while sporting solid balance sheets).
SHORT SCREENS: “Yo-Yos” (stocks in the bottom decile of performance in 2007-2009 (down 85% on average), but up >5x since then (i.e. back to where they started)). “Roller Coasters” (stocks that underperformed in 2007-2009 and have net margins at present in the top quintile of their cycle range). “Expensive Mature Cyclicals” (stocks in cyclical sectors with both share price and EBITDA up > 50% 2007 levels).
Top Stock Ideas (from our Model Portfolio): Our Pan-European Radar (model portfolio) is up +10000 bps vs its MSCI Small Cap benchmark since inception (Feb 2008). Our top picks at this juncture are: Investment Opportunities (Arrow Global, ASTM, Cairo Communications, Cineworld, GN Store, Maire Tecnimont, Nexans, Petrofac, Scandi Tobacco, and Smiths Group); Stocks to Avoid (Hays, Lanxess, Pagegroup, Randstad, Rightmove, Wallenstam).
Figure 1: Thematic Trade Ideas with which to implement our SMid Strategy Views.
16 Thematic Trade Ideas with which to implement our SMid Strategy Views
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Perf |
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Proposed Trade Vehicles |
Since |
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Proposed Trade |
Launch |
Fundamental Logic |
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Long Screens |
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Bulletproof Vests |
JPDESCBV |
-0.8% |
Stocks for a risk off environment - outperformed mkt btw '07 - '09, ND/EBITDA < '07 levels, P/B at disc. to industry |
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Cash Kings |
JPDESCCK |
-10.2% |
Net Cash positions in excess of 50% of Mkt Cap |
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Energy Laggards |
JPDESCEL |
-35.9% |
2nd Derivative: Energy stocks still >50% down from highs that underperformed their sector in 2016 |
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Golden Geese |
JPDESCGG |
-16.0% |
Strong balance sheets with high FCF generation |
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Grown Cheap |
JPDESCGC |
+19.0% |
Hidden Value: Most derated tercile on EV/EBITDA despite having positive EBITDA grw since '06 |
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Investing with Style |
JPDESCIS |
+15.1% |
Candidates for positive surprises: Strong earnings momentum + low mkt expectations = pos surprises & alpha. |
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LatAm vs EM ASIA SMid-Caps^ |
MSSLELA VS MSSLAAJ |
+18.3% |
Discount valuations, earlier stage of recovery, stronger growth outlook. |
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Late Cycle Winners |
JPDESCCL |
-4.3% |
Outperformed the regional index in 2005,2006 and trading at a 20% discount to mkt at present on FCF Yld / P/B |
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Oversold Gems |
JPDESCOG |
*NEW* |
Outperformed the regional index in '07 to '09 Downturn and down more than 20% from Oct '18 Peaks |
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Rising Suns |
JPDESCRS |
+1.8% |
Japanese SMids with buy backs since Abenomics started, net cash > 25% of Mkt Cap, +ve EBITDA since '07 |
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Surf and Turf |
JPDESCST |
+4.8% |
Value & Consistent Cash Generation (EBITDA pos through the cycle at >25% discount on FCF Yld) |
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Short Screens |
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Expensive Mature Cyclicals |
JPDESCMC |
-15.9% |
Exhausted opportunities: SMid-Caps in cyclical sectors with EBITDA and Share Price >50% above 2007 levels |
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Inverted Pyramids |
JPDESCPY |
-6.5% |
Stocks that could suffer from rising wages - top decile of Salary Expense to Revenues |
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Passive Prey |
JPDESCPP |
+1.6% |
Stocks most exposed to Passive Investing, with outflows likely to magnify their fall during correction |
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Roller Coasters |
JPDESCRC |
-7.5% |
Net Margin in top quintile of cycle and underperformed broader mkt in the '07-'09 downturn |
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Yo-Yo's |
JPDESCYY |
-4.3% |
Underperformed in the last recession peak to trough and up 5x since crisis low |
|
Source: J.P. Morgan; Performance calculated since launch is relative to regional MSCI Indices
73
vk.com/id446425943
Mislav Matejka, CFA |
Europe Equity Research |
(44-20) 7134-9741 |
03 December 2018 |
mislav.matejka@jpmorgan.com |
|
Equity valuations have improved noticeably… but 15% upside from here will get us back near peaks.
DM valuations are less demanding after the correction witnessed in 2018 but a rally of just 15% would get us back near peaks on most metrics…
Figure 2: DM Equity Valuations (Equal Weighted Basis – Peak & Avg since 1997 exclude Tech Bubble '00-'01) – Current Valuations Discounted by ‘18E Growth
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SMid |
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Large |
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SMid vs Large |
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Up/Down- |
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Up/Down- |
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Up/Down- |
Up/Down- |
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Current |
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Hist Avg |
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Hist |
Hist |
Hist |
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side to |
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side to |
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Hist |
Hist |
Hist |
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side to |
side to |
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Up/Down- |
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Up/Down- |
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Curr vs |
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Current |
Min |
Avg |
Max |
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Hist Avg |
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Hist Peak |
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Current |
Min |
Avg |
Max |
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Hist Avg |
Hist Peak |
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side |
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side |
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Hist Avg |
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Cont. Europe |
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EV/Sales (ex-Fin) |
2.24x |
1.26x |
1.73x |
2.40x |
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-22.9% |
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2.71x |
1.67x |
2.18x |
2.65x |
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-19.4% |
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-2.2% |
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-5.5% |
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+7.2% |
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+20.8% |
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+26.2% |
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EV/EBITDA (ex-Fin) |
10.10x |
7.19x |
9.24x |
12.18x |
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-8.5% |
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+20.7% |
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11.36x |
7.32x |
9.67x |
12.46x |
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-14.9% |
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+9.7% |
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+12.6% |
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+4.6% |
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+7.9% |
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Trailing P/E (IBES)* |
16.75x |
11.12x |
17.93x |
20.89x |
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+7.0% |
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+24.7% |
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17.38x |
11.59x |
18.62x |
26.79x |
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+7.1% |
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+54.1% |
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+3.8% |
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+3.9% |
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-0.1% |
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Fw P/E (IBES)* |
15.29x |
9.11x |
14.44x |
16.65x |
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-5.5% |
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+8.9% |
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16.24x |
9.78x |
15.62x |
21.45x |
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-3.9% |
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+32.0% |
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+6.2% |
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+8.1% |
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-1.9% |
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P/B |
2.54x |
1.45x |
2.22x |
2.96x |
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-12.8% |
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+16.3% |
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2.90x |
1.77x |
2.59x |
3.93x |
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-11.0% |
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+35.4% |
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+14.2% |
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+16.5% |
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-2.3% |
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Div Yld |
2.4% |
1.6% |
2.1% |
2.8% |
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+15.4% |
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+52.3% |
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3.3% |
1.7% |
2.6% |
3.7% |
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+26.1% |
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+96.5% |
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-26.5% |
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-19.7% |
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-6.8% |
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FCF Yld (ex-Fin) |
3.4% |
0.3% |
3.2% |
5.9% |
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+5.9% |
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+1065.8% |
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4.9% |
2.2% |
4.5% |
6.6% |
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+7.8% |
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+126.2% |
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-30.7% |
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-29.4% |
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-1.2% |
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UK |
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EV/Sales (ex-Fin) |
2.98x |
1.38x |
2.09x |
2.75x |
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-30.0% |
-7.8% |
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2.64x |
2.01x |
2.47x |
3.00x |
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-6.2% |
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-11.6% |
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-30.1% |
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+13.7% |
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+18.6% |
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EV/EBITDA (ex-Fin) |
11.12x |
7.16x |
9.99x |
13.63x |
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-10.1% |
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+22.6% |
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10.24x |
8.98x |
10.76x |
13.42x |
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+5.1% |
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+31.0% |
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-7.9% |
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+7.7% |
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-15.6% |
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Trailing P/E (IBES)* |
16.04x |
9.95x |
16.49x |
19.78x |
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+2.8% |
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+23.3% |
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16.22x |
11.88x |
16.74x |
21.31x |
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+3.2% |
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+31.4% |
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+1.1% |
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+1.5% |
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-0.4% |
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Fw P/E (IBES)* |
15.47x |
9.09x |
14.06x |
16.32x |
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-9.2% |
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+5.5% |
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14.95x |
10.58x |
14.80x |
18.11x |
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-1.0% |
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+21.1% |
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-3.4% |
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+5.3% |
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-8.7% |
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P/B |
2.83x |
1.61x |
2.57x |
3.19x |
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-9.3% |
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+13.0% |
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3.22x |
1.90x |
2.84x |
3.53x |
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-11.6% |
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+9.8% |
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+13.8% |
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+10.9% |
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+3.0% |
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Div Yld |
2.7% |
1.6% |
2.3% |
3.6% |
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+15.8% |
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+69.2% |
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3.4% |
2.3% |
2.8% |
3.8% |
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+21.6% |
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+48.1% |
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-22.4% |
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-18.6% |
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-3.8% |
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FCF Yld (ex-Fin) |
3.7% |
0.8% |
3.1% |
7.0% |
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+17.4% |
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+378.4% |
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6.3% |
1.5% |
4.0% |
5.8% |
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+59.2% |
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+324.8% |
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-41.4% |
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-20.5% |
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-20.9% |
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US/Can |
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EV/Sales (ex-Fin) |
3.57x |
1.57x |
2.83x |
3.57x |
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-20.9% |
-0.0% |
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3.78x |
2.01x |
3.14x |
4.04x |
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-16.8% |
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-5.4% |
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+7.0% |
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+5.8% |
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+11.2% |
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EV/EBITDA (ex-Fin) |
11.88x |
8.17x |
11.92x |
15.38x |
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+0.4% |
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+29.5% |
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13.30x |
8.03x |
12.44x |
15.65x |
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-6.5% |
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+17.6% |
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+12.0% |
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+4.3% |
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+7.7% |
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Trailing P/E (IBES)* |
19.00x |
14.23x |
22.46x |
25.97x |
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+18.2% |
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+36.7% |
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19.95x |
12.79x |
21.18x |
27.01x |
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+6.2% |
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+35.4% |
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+5.0% |
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-5.7% |
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+10.7% |
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Fw P/E (IBES)* |
16.62x |
12.79x |
17.90x |
22.04x |
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+7.7% |
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+32.6% |
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16.41x |
12.36x |
17.90x |
22.30x |
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+9.1% |
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+35.9% |
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-1.3% |
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+0.0% |
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-1.3% |
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P/B |
3.39x |
1.75x |
2.71x |
3.26x |
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-20.1% |
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-3.8% |
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4.37x |
2.27x |
3.42x |
4.75x |
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-21.7% |
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+8.7% |
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+29.0% |
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+26.3% |
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+2.7% |
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Div Yld |
1.4% |
0.6% |
0.9% |
1.7% |
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+51.9% |
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+121.1% |
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2.2% |
1.2% |
1.6% |
2.6% |
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+41.1% |
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+88.2% |
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-36.7% |
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-41.2% |
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+4.5% |
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FCF Yld (ex-Fin) |
0.3% |
-1.0% |
1.1% |
4.6% |
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|
-74.0% |
|
|
NM |
|
4.1% |
1.6% |
3.5% |
5.4% |
|
+18.0% |
|
+159.6% |
|
|
-93.3% |
|
|
-69.6% |
|
|
-23.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EV/Sales (ex-Fin) |
1.10x |
0.52x |
0.83x |
1.40x |
|
-25.2% |
|
|
|
|
1.76x |
1.00x |
1.37x |
1.70x |
|
-22.5% |
|
-3.6% |
|
|
|
|
|
|
|
|
-5.8% |
|
|
|
|
+27.1% |
|
|
|
|
+59.8% |
|
|
+65.6% |
|
|
|
||||||||||||||||
EV/EBITDA (ex-Fin) |
8.20x |
5.43x |
8.48x |
12.89x |
|
|
+3.4% |
|
|
+57.2% |
|
9.57x |
6.95x |
9.39x |
12.70x |
|
-1.9% |
|
+32.7% |
|
|
+16.8% |
|
|
+10.7% |
|
|
+6.1% |
|
Trailing P/E (IBES)* |
17.05x |
14.98x |
23.84x |
44.29x |
|
|
+39.8% |
|
|
+159.8% |
|
18.90x |
16.64x |
26.70x |
44.36x |
|
+41.3% |
|
+134.7% |
|
|
+10.8% |
|
|
+12.0% |
|
|
-1.2% |
|
Fw P/E (IBES)* |
16.66x |
11.84x |
18.47x |
35.25x |
|
|
+10.9% |
|
|
+111.6% |
|
17.33x |
13.44x |
21.03x |
35.74x |
|
+21.4% |
|
+106.2% |
|
|
+4.0% |
|
|
+13.9% |
|
|
-9.8% |
|
P/B |
1.82x |
0.82x |
1.34x |
2.42x |
|
|
-26.0% |
|
|
+33.2% |
|
2.17x |
1.08x |
1.77x |
2.48x |
|
-18.4% |
|
+14.5% |
|
|
+19.4% |
|
|
+31.6% |
|
|
-12.3% |
|
Div Yld |
1.9% |
0.8% |
1.6% |
2.3% |
|
|
+23.8% |
|
|
+133.2% |
|
2.0% |
0.8% |
1.4% |
2.3% |
|
+42.3% |
|
+154.2% |
|
|
-3.2% |
|
|
+11.2% |
|
|
-14.5% |
|
FCF Yld (ex-Fin) |
3.9% |
-2.5% |
3.7% |
10.5% |
|
|
+5.2% |
|
|
NM |
|
5.0% |
-1.6% |
3.6% |
8.4% |
|
+36.9% |
|
NM |
|
|
-22.3% |
|
|
+1.1% |
|
|
-23.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Bloomberg, Datastream, Factset, and J.P. Morgan Calculations *Note: Trailing P/E refers to 2017A, Fw P/E to 2018E, P/B is last reported.
74
vk.com/id446425943
vk.com/id446425943
Mislav Matejka, CFA |
Europe Equity Research |
(44-20) 7134-9741 |
03 December 2018 |
mislav.matejka@jpmorgan.com |
|
How to position? Remain OW SMid vs Large worldwide…
Trading out of SMid and into Large during recessions would have historically destroyed alpha. Moreover, SMids now benefit from a long list of tailwinds:
SMid-Caps are a superior asset class as demonstrated by empirical evidence: 1) they grow earnings 400 bps faster than large-caps per year on average within DMs; 2) they benefit from more cash-rich balance sheets with which to deliver shareholder value (M&A, R&D, buybacks, divs, capex, etc); 3) they are the key beneficiaries of M&A which becomes a yearly tailwind for them; 4) they are run by people who have skin in the game (i.e. they are more widely owned by insiders and stakeholders than large-caps are); and 5) they are far less covered, are therefore less efficiently priced, and thus offer more opportunity (~13% of them go up 50% each year on average in Cont. Europe... vs just 4% of large-caps). All reasons why SMid indices have historically beaten their Large-Cap peers.
The excess growth of SMid-Caps vs Large-Caps amounts to an even bigger performance delta during periods of anemic economic growth like the one we are living in. In Japan, the Topix 100 is up just 6% cumulatively since December 1997, while the Topix Small Cap has rallied 2.5x.
They are less exposed to the political trends of the 21st century. As DM governments find it increasingly hard to maintain their welfare states, protectionism and populism are emerging as political trends that are likely to have a lasting impact on these economies. We note that SMid-Caps should be better equipped than large-caps to deal with these trends as 1) their more domestic nature could shield them from protectionist measures, while 2) their larger share of the workforce and their smaller share of mkt cap shields them from populistic actions (i.e. regulatory pressures).
They could be the answer to the problems plaguing the asset management industry. SMid-Caps are less exposed to passive investing – their thinner liquidity and stronger track record of fundamental, actively managed SMid funds make them less of a target for passive and quant funds. Not surprisingly, flows show that a preference for SMid-Cap funds is rapidly emerging among investors.
But what about liquidity? Our analysis shows there is enough liquidity for SMid AUM to triple (from 10% of total actively managed AUM in the world today, to 27%).
Figure 6: Scorecard by Mkt Cap – Pan-European Equities (Lower Rankings = More Favorable Outlook; last reported unless labeled otherwise).
|
Revisions |
|
|
Growth |
|
|
|
|
|
Valuations (last reported unless otherwise stated) — Hist Avgs since 1997 excl. Tech Bubble ('00-'01) |
|
|
Balance Sheet |
|
|
Price Momentum |
|
|
|
||||||||||||||||||
|
-3M |
|
RevisionRank |
|
IBES |
(1=Highest)Rank |
IBES |
(1=Lowest)Rank |
Growth.AvgRank |
|
|
vs |
(1=Best)Rank |
|
vs |
(1=Best)Rank |
|
vs |
(1=Best)Rank |
|
vs |
(1=Best)Rank |
|
vs |
(1=Best)Rank |
RankVal.Avg |
|
Net |
vs |
RankQuality |
|
From |
(1=WorstRankPerf) |
|
(1=BestRankPerf) |
|
Moment.AvgRank |
|
EPS |
|
|
|
EPS |
|
EPS |
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||||||||
|
Rev's |
|
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|
Grw |
|
Grw |
|
|
|
P/E |
Hist |
|
PEG |
Hist |
|
|
Hist |
|
|
Hist |
|
FCF |
Hist |
|
|
|
Debt/ |
Hist |
|
|
10-Yr |
|
|
|
|
|
|
18E |
|
|
|
17A |
|
18E |
|
|
|
17A |
Avg |
|
17A |
Avg |
|
P/B |
Avg |
|
Div Yld |
Avg |
|
Yld |
Avg |
|
|
|
EBITDA |
Avg |
|
|
High |
|
YTD |
|
|
|
UK |
|
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|
|
|
Large-Caps (> $5 Bill) |
-1.2% |
|
1 |
|
18.2% |
1 |
7.8% |
2 |
1 |
|
17.5x |
0.6x |
2 |
1.9x |
0.3x |
1 |
3.2x |
0.3x |
2 |
3.2% |
0.4% |
1 |
6.0% |
1.9% |
1 |
1 |
|
1.4x |
-0.1x |
1 |
|
-31% |
2 |
-8.8% |
2 |
|
2 |
SMid-Caps ($0.1-5 Bill) |
-1.4% |
|
2 |
|
12.9% |
2 |
6.9% |
1 |
1 |
|
17.2x |
0.5x |
1 |
1.5x |
0.3x |
2 |
2.8x |
0.2x |
1 |
2.5% |
0.2% |
2 |
3.4% |
0.2% |
2 |
2 |
|
1.0x |
0.1x |
2 |
|
-36% |
1 |
-7.1% |
1 |
|
1 |
Mid-Caps ($1-5 Bill) |
-1.1% |
|
1 |
|
12.2% |
2 |
6.0% |
1 |
1 |
|
17.6x |
0.5x |
1 |
1.5x |
0.1x |
1 |
2.8x |
0.0x |
1 |
2.7% |
0.1% |
2 |
4.9% |
0.6% |
1 |
1 |
|
1.3x |
0.1x |
2 |
|
-36% |
2 |
-12.5% |
2 |
|
2 |
Small-Caps ($0.1-1 Bill) |
-1.6% |
|
2 |
|
13.3% |
1 |
7.5% |
2 |
1 |
|
16.9x |
0.5x |
2 |
1.6x |
0.4x |
2 |
2.8x |
0.3x |
2 |
2.4% |
0.2% |
1 |
2.8% |
0.1% |
2 |
2 |
|
0.8x |
0.0x |
1 |
|
-37% |
1 |
-4.3% |
1 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cont. Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large-Caps (> $5 Bill) |
-1.4% |
|
1 |
|
15.4% |
1 |
10.3% |
1 |
1 |
|
19.2x |
0.5x |
1 |
1.8x |
0.3x |
1 |
2.9x |
0.3x |
2 |
3.0% |
0.4% |
1 |
4.6% |
0.1% |
1 |
1 |
|
1.3x |
0.0x |
2 |
|
-29% |
2 |
-8.3% |
2 |
|
2 |
SMid-Caps ($0.1-5 Bill) |
-2.6% |
|
2 |
|
13.4% |
2 |
11.5% |
2 |
2 |
|
18.7x |
0.6x |
2 |
1.4x |
0.4x |
2 |
2.5x |
0.3x |
1 |
2.2% |
0.1% |
2 |
3.1% |
-0.2% |
2 |
2 |
|
1.1x |
-0.1x |
1 |
|
-38% |
1 |
-7.8% |
1 |
|
1 |
Mid-Caps ($1-5 Bill) |
-2.1% |
|
1 |
|
14.1% |
1 |
10.6% |
1 |
1 |
|
18.1x |
-0.4x |
1 |
1.5x |
0.3x |
1 |
2.6x |
0.2x |
1 |
2.6% |
0.3% |
1 |
4.3% |
0.2% |
1 |
1 |
|
1.1x |
-0.2x |
1 |
|
-35% |
2 |
-11.0% |
2 |
|
2 |
Small-Caps ($0.1-1 Bill) |
-3.0% |
|
2 |
|
12.8% |
2 |
12.2% |
2 |
2 |
|
19.1x |
1.2x |
2 |
1.3x |
0.4x |
2 |
2.5x |
0.3x |
2 |
1.9% |
0.0% |
2 |
2.5% |
-0.5% |
2 |
2 |
|
1.1x |
-0.1x |
2 |
|
-39% |
1 |
-6.1% |
1 |
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Datastream, Factset, Bloomberg, and J.P. Morgan Calculations
76
vk.com/id446425943
Mislav Matejka, CFA |
Europe Equity Research |
(44-20) 7134-9741 |
03 December 2018 |
mislav.matejka@jpmorgan.com |
|
How to position? Stick to our YTD OW on FCF Yld and Low ND/EBITDA
We stick to our 2018 OW on "Quality Value" (high FCF Yld stocks with solid balance sheets), which delivered big alpha YTD, while the relationship between high ROE, high EBITDA Margin, and performance started to break down as risk aversion grew after the summer. We note that our "Quality Value" approach has also proven to be the best and most consistent style performance among SMid-Caps worldwide during the last 3 US recessions.
Figure 7: Style Performance — Global SMid-Caps
Correlation with SMid Performance by Metric (Metrics ordered from Best to Worst) — Global SMid
|
|
|
QUALITY |
|
|
|
|
VALUE/ GROWTH/YIELD |
|
|
|
MOMENTUM |
||||||
|
|
(1=Best) |
EBITDA |
(1=Best) |
ND/ |
(1=Best) |
EV/ |
(1=Best) |
|
(1=Best) |
|
(1=Best) |
|
(1=Best) |
P/E |
(1=Best) |
12 M th |
(1=Best) |
|
|
Rank |
Rank |
Rank |
Rank |
|
Rank |
|
Rank |
|
Rank |
Rank |
Rank |
|||||
|
ROE |
M argin |
EBITDA |
EBITDA |
FCF Yld |
P/B |
Div Yld |
(Yr-1) |
Perf |
|||||||||
YTD |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cont. Europe |
5.3% |
3 |
20.2% |
1 |
1.0% |
6 |
-5.4% |
9 |
5.1% |
4 |
2.9% |
5 |
5.3% |
2 |
-0.2% |
7 |
-3.6% |
8 |
UK |
1.8% |
6 |
6.6% |
3 |
5.2% |
5 |
-0.4% |
7 |
7.1% |
2 |
7.9% |
1 |
-8.2% |
8 |
-8.3% |
9 |
6.3% |
4 |
US/Can |
4.8% |
3 |
-4.9% |
8 |
15.7% |
1 |
-3.9% |
6 |
10.3% |
2 |
0.3% |
5 |
-4.7% |
7 |
-13.6% |
9 |
1.3% |
4 |
Japan |
0.1% |
6 |
0.2% |
5 |
8.2% |
2 |
4.8% |
3 |
3.1% |
4 |
0.0% |
7 |
8.8% |
1 |
-11.6% |
8 |
-23.1% |
9 |
Australia/NZ |
7.9% |
6 |
25.8% |
1 |
15.4% |
3 |
12.7% |
4 |
22.4% |
2 |
10.8% |
5 |
-4.9% |
9 |
-3.8% |
8 |
-2.3% |
7 |
CEEM EA |
3.8% |
7 |
14.5% |
1 |
4.5% |
6 |
4.6% |
5 |
7.5% |
3 |
1.6% |
8 |
-1.4% |
9 |
6.2% |
4 |
8.6% |
2 |
Asia ex-J |
1.3% |
8 |
3.6% |
7 |
6.8% |
5 |
10.0% |
4 |
13.6% |
2 |
10.3% |
3 |
20.2% |
1 |
5.8% |
6 |
-4.8% |
9 |
LatAm |
0.2% |
8 |
-6.3% |
9 |
0.4% |
7 |
1.6% |
6 |
10.3% |
1 |
3.1% |
3 |
7.0% |
2 |
2.9% |
4 |
2.9% |
5 |
1 Mth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cont. Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2% |
1 |
4.9% |
6 |
4.5% |
7 |
6.0% |
5 |
7.8% |
3 |
-2.1% |
9 |
9.8% |
2 |
7.2% |
4 |
-1.5% |
8 |
|
UK |
5.3% |
3 |
1.6% |
6 |
3.8% |
4 |
6.4% |
2 |
19.6% |
1 |
-0.5% |
9 |
-0.4% |
8 |
1.8% |
5 |
0.3% |
7 |
US/Can |
9.2% |
2 |
-4.3% |
8 |
8.2% |
3 |
4.3% |
4 |
9.8% |
1 |
3.9% |
5 |
-4.9% |
9 |
1.7% |
6 |
-0.7% |
7 |
Japan |
-9.4% |
9 |
-8.4% |
8 |
-1.3% |
6 |
10.6% |
2 |
7.1% |
3 |
11.1% |
1 |
6.1% |
4 |
5.1% |
5 |
-8.1% |
7 |
Australia/NZ |
-7.2% |
9 |
0.2% |
6 |
4.9% |
4 |
7.3% |
3 |
13.3% |
1 |
1.2% |
5 |
11.7% |
2 |
-2.2% |
7 |
-3.2% |
8 |
CEEM EA |
-0.3% |
6 |
3.2% |
3 |
1.4% |
4 |
0.5% |
5 |
4.2% |
1 |
-2.8% |
7 |
4.2% |
2 |
-4.8% |
8 |
-5.5% |
9 |
Asia ex-J |
0.8% |
5 |
-3.6% |
6 |
1.7% |
3 |
2.7% |
1 |
2.7% |
2 |
1.2% |
4 |
-5.6% |
8 |
-5.4% |
7 |
-8.8% |
9 |
LatAm |
8.5% |
1 |
-14.5% |
8 |
-1.9% |
4 |
-10.0% |
6 |
6.5% |
2 |
-12.2% |
7 |
-10.0% |
5 |
-16.1% |
9 |
3.5% |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Bloomberg, Factset, Datastream and J P. Morgan Calculations.
77
vk.com/id446425943
Mislav Matejka, CFA |
Europe Equity Research |
(44-20) 7134-9741 |
03 December 2018 |
mislav.matejka@jpmorgan.com |
|
Within European SMid... BY COUNTRY:
We look for safety in balance sheets and EM exposure. Thus, we stick to our OW on Switzerland as SMid-Caps in that country offer a safe-haven within Europe (limited currency risk, low corporate leverage, welcoming attitude towards foreign capital), and one of the most appealing growth/value proposition (a trailing FCF Yld of 3.3% and one of the highest exposures to faster growing EMs). We are also upgrading German SMid-Caps to OW from UW as they continue to benefit from one of the highest exposures to EMs, one of the strongest balance sheets, and a much improved valuation following their underperformance in 2018.
Figure 8: Scorecard by Country – Pan-European Equities (Lower Rankings = More Favorable Outlook; last reported unless labeled otherwise)
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Revisions |
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Growth |
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Valuations (last rptd unless otherwise stated) |
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|
Balance Sheet |
|
Price Momentum |
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|
Country Risk |
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||||||||||||||
Fundamental Rec |
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|
|
(1=WorstRank |
|
|
|
|
|
|
|
|
-1M |
|
|
|
|
|
18E |
RankRevis. |
|
17A |
(1=Best)Rank |
18E |
(1=Best)Rank |
|
GrowthRank |
|
17A |
(1=Best)Rank |
17A |
(1=Best)Rank |
P/B |
(1=Best)Rank |
Yld |
(1=Best)Rank |
|
Yld |
(1=Best)Rank |
|
RankVal. |
|
EBITDA |
QualityRank |
|
High |
YTD |
(1=BestRank |
|
Moment.Rank |
|
CDS** |
(1=Best)Rank |
|
(1=Best)Rank |
|
RankRisk |
|||
|
|
|
|
|
|
|
|
|
|
|
|
CDS |
|
||||||||||||||||||||||||||||||
|
|
|
-3M |
|
|
IBES |
|
IBES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From |
|
|
|
|
|
|
|
|
|
Chg |
|
|
|
|
|
|
EPS |
|
|
EPS |
|
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
5 Yr |
|
|
5 Yr |
|
|
|
|
|
|
|
Rev's |
|
|
Grw |
|
Grw |
|
|
|
|
P/E |
|
PEG |
|
|
|
Div |
|
|
FCF |
|
|
|
|
Debt/ |
|
|
10-Yr |
|
|
|
|
|
|
Sov |
|
|
Sov |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finland |
-1.9% |
6 |
|
14.7% |
4 |
12.5% |
11 |
|
9 |
|
19.0x |
10 |
0.7x |
1 |
3.0x |
15 |
3.2% |
1 |
|
4.6% |
3 |
|
3 |
|
1.1x |
9 |
|
-37% |
9 |
-10.5% |
11 |
|
11 |
|
13 |
6 |
|
+1 |
8 |
|
7 |
|
|
Norway |
-2.5% |
9 |
|
17.6% |
2 |
14.3% |
13 |
|
9 |
|
14.5x |
2 |
1.1x |
4 |
2.6x |
11 |
2.0% |
12 |
|
2.9% |
10 |
|
7 |
|
1.8x |
15 |
|
-40% |
5 |
3.5% |
2 |
|
2 |
|
11 |
2 |
|
+0 |
4 |
|
3 |
|
|
Sweden |
-2.6% |
10 |
|
14.2% |
6 |
16.6% |
14 |
|
14 |
|
19.4x |
11 |
1.4x |
8 |
3.2x |
16 |
1.9% |
14 |
|
3.1% |
9 |
|
15 |
|
1.0x |
8 |
|
-33% |
14 |
5.4% |
1 |
|
5 |
|
11 |
3 |
|
-0 |
2 |
|
2 |
|
|
Denmark |
-2.2% |
8 |
|
5.2% |
14 |
8.8% |
5 |
|
13 |
|
14.0x |
1 |
1.8x |
14 |
2.5x |
10 |
2.0% |
10 |
|
2.9% |
11 |
|
9 |
|
1.2x |
10 |
|
-38% |
6 |
-4.4% |
4 |
|
3 |
|
12 |
4 |
|
+0 |
6 |
|
4 |
UW |
|
United Kingdom |
-1.4% |
4 |
|
12.9% |
9 |
6.9% |
3 |
|
1 |
|
17.2x |
6 |
1.5x |
9 |
2.8x |
14 |
2.5% |
6 |
|
3.4% |
6 |
|
8 |
|
1.0x |
6 |
|
-36% |
11 |
-7.1% |
7 |
|
7 |
|
36 |
11 |
|
+8 |
15 |
|
13 |
OW |
|
Ireland |
-0.6% |
3 |
|
17.1% |
3 |
12.1% |
10 |
|
3 |
|
20.1x |
12 |
1.2x |
6 |
1.7x |
3 |
1.8% |
15 |
|
2.5% |
13 |
|
11 |
|
0.2x |
1 |
|
-37% |
10 |
-7.9% |
8 |
|
7 |
|
41 |
12 |
|
+2 |
10 |
|
11 |
UW |
|
Germany |
-1.6% |
5 |
|
10.3% |
11 |
10.1% |
6 |
|
11 |
|
20.5x |
14 |
1.6x |
11 |
2.7x |
12 |
2.0% |
11 |
|
2.4% |
15 |
|
16 |
|
0.6x |
3 |
|
-38% |
7 |
-12.8% |
13 |
|
11 |
|
14 |
8 |
|
+3 |
11 |
|
10 |
|
|
Netherlands |
-2.2% |
7 |
|
14.7% |
5 |
11.1% |
9 |
|
5 |
|
16.5x |
5 |
1.7x |
12 |
2.2x |
6 |
2.8% |
3 |
|
3.9% |
5 |
|
5 |
|
1.0x |
5 |
|
-44% |
2 |
-13.3% |
14 |
|
6 |
|
12 |
5 |
|
+1 |
7 |
|
5 |
|
|
Belgium |
-4.7% |
15 |
|
10.1% |
13 |
5.0% |
1 |
|
5 |
|
18.3x |
9 |
2.1x |
15 |
2.4x |
9 |
2.8% |
2 |
|
1.6% |
16 |
|
13 |
|
1.6x |
13 |
|
-32% |
16 |
-7.0% |
6 |
|
13 |
|
25 |
9 |
|
+1 |
9 |
|
9 |
|
|
Austria |
-0.2% |
2 |
|
10.2% |
12 |
5.9% |
2 |
|
5 |
|
15.7x |
4 |
1.6x |
10 |
1.8x |
4 |
2.4% |
8 |
|
2.7% |
12 |
|
6 |
|
1.5x |
12 |
|
-33% |
15 |
-8.1% |
9 |
|
15 |
|
14 |
7 |
|
+0 |
5 |
|
5 |
|
|
Luxembourg |
NM |
NM |
|
NM NM |
NM NM |
|
NM |
|
NM NM |
NM NM |
1.0x |
1 |
2.6% |
5 |
|
9.4% |
1 |
|
1 |
|
0.4x |
2 |
|
-34% |
12 |
-10.6% |
12 |
|
15 |
|
NA NM |
|
NA NM |
|
NM |
||||||
OW |
|
Switzerland |
-2.6% |
11 |
|
13.5% |
8 |
7.8% |
4 |
|
1 |
|
21.1x |
15 |
1.8x |
13 |
2.1x |
5 |
2.4% |
7 |
|
3.3% |
7 |
|
10 |
|
0.6x |
4 |
|
-34% |
13 |
-10.4% |
10 |
|
14 |
|
9 |
1 |
|
+0 |
3 |
|
1 |
UW |
|
France |
-3.6% |
14 |
|
14.1% |
7 |
10.6% |
7 |
|
5 |
|
18.0x |
8 |
1.4x |
7 |
2.2x |
7 |
1.9% |
13 |
|
2.5% |
14 |
|
11 |
|
1.0x |
7 |
|
-41% |
4 |
-14.6% |
15 |
|
9 |
|
33 |
10 |
|
+4 |
12 |
|
11 |
|
|
Italy |
-3.3% |
13 |
|
18.0% |
1 |
13.0% |
12 |
|
3 |
|
17.7x |
7 |
0.9x |
2 |
2.4x |
8 |
2.2% |
9 |
|
4.0% |
4 |
|
3 |
|
1.3x |
11 |
|
-43% |
3 |
-16.6% |
16 |
|
9 |
|
290 |
15 |
|
+7 |
14 |
|
15 |
|
|
Portugal |
0.5% |
1 |
|
-0.5% |
15 |
17.0% |
15 |
|
15 |
|
15.7x |
3 |
0.9x |
3 |
1.6x |
2 |
2.8% |
4 |
|
5.6% |
2 |
|
2 |
|
2.4x |
16 |
|
-44% |
1 |
-6.5% |
5 |
|
1 |
|
102 |
14 |
|
-5 |
1 |
|
8 |
|
|
Spain |
-3.2% |
12 |
|
12.3% |
10 |
10.9% |
8 |
|
12 |
|
20.1x |
13 |
1.2x |
5 |
2.8x |
13 |
1.7% |
16 |
|
3.3% |
8 |
|
14 |
|
1.7x |
14 |
|
-38% |
8 |
-1.1% |
3 |
|
4 |
|
92 |
13 |
|
+6 |
13 |
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pan-Europe |
-2.3% |
|
|
13.2% |
|
10.0% |
|
|
|
|
18.2x |
|
1.5x |
|
2.6x |
|
2.2% |
|
|
3.2% |
|
|
|
|
1.1x |
|
|
-37% |
|
-7.6% |
|
|
|
|
61 |
|
|
+4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Bloomberg, Factset, Datastream and J.P. Morgan Calculations. * Equal Wtd rank of Revision, Growth, Valuations, Balance Sheet, Price Momentum and Country Risk Ranking, ** GDP Weighted Sovereign CDS Spreads
78
vk.com/id446425943
Mislav Matejka, CFA |
Europe Equity Research |
(44-20) 7134-9741 |
03 December 2018 |
mislav.matejka@jpmorgan.com |
|
How to position? By region…
We remain UW US SMid-Caps (facing tough comps in 2019, the most demanding consensus estimates, and the least accommodative monetary policy, and all while trading at a premium to SMid worldwide after having rallied the most, within an economy that has travelled the farthest into this economic cycle). We remain OW Asia ex-J (with consensus now assuming an all-out trade war between the US and China, and the recent correction offering a better entry point into a superior structural growth equation, trading at a discount to US valuations, with a less leveraged corporate balance sheet, and a positive current account). We remain OW LatAm (much appears to be discounted already). And remain OW Japan (a value play, with no corporate debt, a history of delivering double digit earnings growth in the face of anemic real GDP growth, and benefiting from a stronger US$).
Figure 9: Global SMid-Cap Scorecard by Region (Lower Rankings = More Favorable Outlooks) – all valuation metrics are last rptd, except P/E and PEG, which are based on consensus 2017A.
|
# of |
|
Stocks |
W. Europe |
2394 |
Eurozone |
1115 |
Periphery |
323 |
Scandi/Switzerland |
586 |
Continental Europe |
1701 |
UK |
665 |
US/Can |
3317 |
US |
2858 |
Canada |
459 |
Japan |
2144 |
Australia/NZ |
478 |
Australia |
410 |
New Zealand |
68 |
CEEMEA |
1483 |
Russia |
113 |
CEE & Turkey |
501 |
MENA |
681 |
Sub-Saharan Africa |
301 |
Asia ex-J |
5180 |
China (A Sh) |
3376 |
China (B Sh) |
43 |
Hong Kong |
1037 |
India |
786 |
ASEAN |
1303 |
Taiwan |
805 |
South Korea |
979 |
Other |
227 |
LatAm |
472 |
Brazil |
115 |
Chile |
100 |
Central Am |
127 |
Mexico |
99 |
South Am ex Brazil |
230 |
Global |
15468 |
QuantitativeRank*
4
5
2
6
1
7
3
Revisions
|
|
|
|
-3M |
Rank |
|
|
|
|
EPS |
Revision |
|
18E |
|
|
Rev's |
|
|
-2.3% |
|
|
4 |
|
|
-2.6% |
|
|
-2.9% |
|
|
-2.6% |
|
|
-2.6% |
|
|
-1.4% |
|
|
-1.3% |
1 |
|
-1.0% |
|
|
-3.6% |
|
|
-2.8% |
5 |
|
-4.4% |
7 |
|
-4.8% |
|
|
-1.6% |
|
|
-1.9% |
2 |
|
-1.3% |
|
|
-1.1% |
|
|
-2.2% |
|
|
-2.9% |
|
|
-4.0% |
6 |
|
-4.4% |
|
|
-2.6% |
|
|
-2.9% |
|
|
-0.1% |
|
|
-3.8% |
|
|
-3.9% |
|
|
-5.7% |
|
|
-1.5% |
|
|
-2.2% |
3 |
|
-2.9% |
|
|
-3.3% |
|
|
-1.1% |
|
|
-1.1% |
|
|
-2.6% |
|
|
-2.7% |
|
Growth |
|
IBES |
(1=Highest) |
|
|
EPS |
|
Grw |
Rank |
17A |
|
13.2% |
5 |
13.0% |
|
17.8% |
|
14.0% |
|
13.4% |
|
12.9% |
|
12.5% |
6 |
12.0% |
|
15.9% |
|
13.9% |
4 |
10.9% |
7 |
10.9% |
|
10.8% |
|
17.8% |
2 |
36.2% |
|
24.2% |
|
17.8% |
|
8.6% |
|
17.4% |
3 |
24.1% |
|
2% |
|
26.5% |
|
19.0% |
|
12.3% |
|
13.2% |
|
22.3% |
|
11.0% |
|
22.8% |
1 |
30.9% |
|
18.4%
9.9%
9.9%
27.3%
14.7%
IBES |
(1=Lowest) |
|
|
EPS |
|
Grw |
Rank |
18E |
|
10.0% |
1 |
10.7% |
|
13.1% |
|
13.1% |
|
11.5% |
|
6.9% |
|
23.8% |
6 |
25.4% |
|
12.5% |
|
10.0% |
2 |
11.3% |
3 |
12.1% |
|
7.9% |
|
14.2% |
4 |
19.8% |
|
17.0% |
|
9.7% |
|
17.0% |
|
18.6% |
5 |
28.3% |
|
0.4% |
|
19.8% |
|
22.6% |
|
11.1% |
|
21.3% |
|
24.4% |
|
13.2% |
|
28.5% |
7 |
32.3% |
|
18.3%
16.3%
16.3%
35.9%
16.3%
RankGrowth.
Avg
1
7
1
6
1
4
4
Valuations (last reported unless otherwise stated)
P/E |
Rank |
PEG |
Rank |
|
Rank |
Div |
Rank |
17A |
17A |
P/B |
Yld |
||||
18.2x |
2 |
1.5x |
4 |
2.6x |
5 |
2.2% |
4 |
18.7x |
|
1.4x |
|
2.5x |
|
2.2% |
|
18.1x |
|
1.0x |
|
2.4x |
|
2.0% |
|
18.7x |
|
1.5x |
|
2.7x |
|
2.1% |
|
18.7x |
|
1.4x |
|
2.5x |
|
2.2% |
|
17.2x |
|
1.5x |
|
2.8x |
|
2.5% |
|
23.5x |
7 |
1.6x |
6 |
3.4x |
7 |
1.1% |
7 |
23.7x |
|
1.6x |
|
3.5x |
|
1.1% |
|
22.1x |
|
1.4x |
|
2.9x |
|
1.5% |
|
18.8x |
4 |
1.5x |
5 |
1.8x |
2 |
1.7% |
6 |
19.8x |
5 |
2.6x |
7 |
3.2x |
6 |
2.7% |
2 |
19.6x |
|
2.5x |
|
3.3x |
|
2.5% |
|
20.5x |
|
2.9x |
|
2.3x |
|
3.7% |
|
13.9x |
1 |
0.8x |
1 |
1.8x |
1 |
3.3% |
1 |
8.3x |
|
0.2x |
|
1.8x |
|
2.7% |
|
13.0x |
|
0.6x |
|
1.7x |
|
2.6% |
|
14.8x |
|
0.9x |
|
1.7x |
|
3.5% |
|
13.8x |
|
1.1x |
|
1.8x |
|
3.9% |
|
20.2x |
6 |
1.1x |
3 |
2.3x |
4 |
1.9% |
5 |
28.1x |
|
1.2x |
|
2.7x |
|
1.0% |
|
8.9x |
|
0.8x |
|
2.0x |
|
2.0% |
|
16.0x |
|
0.8x |
|
2.1x |
|
1.8% |
|
26.9x |
|
1.4x |
|
3.2x |
|
0.8% |
|
18.6x |
|
1.4x |
|
2.2x |
|
2.2% |
|
17.7x |
|
0.9x |
|
2.0x |
|
3.3% |
|
19.3x |
|
0.7x |
|
2.2x |
|
1.2% |
|
15.5x |
|
1.1x |
|
2.1x |
|
2.8% |
|
18.5x |
3 |
1.1x |
2 |
2.1x |
3 |
2.6% |
3 |
20.1x |
|
0.9x |
|
2.4x |
|
2.3% |
|
19.8x |
|
2.7x |
|
1.9x |
|
2.9% |
|
16.6x |
|
1.0x |
|
1.8x |
|
2.3% |
|
16.6x |
|
1.0x |
|
1.8x |
|
2.2% |
|
18.6x |
|
1.4x |
|
2.1x |
|
2.9% |
|
19.8x |
|
1.4x |
|
2.4x |
|
1.9% |
|
|
|
|
|
FCF
Yld Rank
3.2% 4
3.1%
4.1%
3.1%
3.1%
3.4%
0.2% 7
0.4% -0.6%
3.6% 3
1.7% 5
1.5%
2.5%
4.5% 1
4.6%
4.4%
4.7%
4.4%
1.0% 6
-1.1% -0.3% -0.2% 0.4% 1.9% 2.1% 0.5% 0.5%
3.9% 2
4.6%
3.2%
2.9%
2.6%
4.0%
1.9%
|
|
Balance Sheet |
|
|
Price Momentum |
|
|
|||
|
|
|
|
|
|
|
Rank(1=Worst Perf) |
|
Rank(1=Best Perf) |
|
Val.AvgRank |
|
EBITDA |
BalanceSheet Rank |
|
|
High |
YTD |
|
||
|
|
Net |
|
|
|
From |
|
|
|
|
|
|
Debt/ |
|
|
|
10-Yr |
|
|
|
|
|
|
1.1x |
|
|
|
-37.2% |
5 |
-7.6% |
5 |
|
|
|
|
|
|
|
|||||
3 |
|
4 |
|
|
|
|||||
|
|
1.1x |
|
|
|
-38.8% |
|
-11.7% |
|
|
|
|
1.6x |
|
|
|
-41.5% |
|
-9.9% |
|
|
|
|
1.1x |
|
|
|
-35.2% |
|
-0.4% |
|
|
|
|
1.1x |
|
|
|
-37.6% |
|
-7.8% |
|
|
|
|
1.0x |
|
|
|
-36.4% |
|
-7.1% |
|
|
7 |
|
2.2x |
7 |
|
|
-43.3% |
2 |
-2.2% |
2 |
|
|
|
2.2x |
|
|
|
-42.5% |
|
-0.6% |
|
|
|
|
1.9x |
|
|
|
-48.4% |
|
-11.6% |
|
|
4 |
|
-0.1x |
1 |
|
|
-33.8% |
7 |
-9.4% |
6 |
|
6 |
|
1.0x |
3 |
|
|
-39.6% |
4 |
-2.1% |
1 |
|
|
|
0.9x |
|
|
|
-42.7% |
|
-2.8% |
|
|
|
|
1.7x |
|
|
|
-22.8% |
|
1.4% |
|
|
1 |
|
1.5x |
5 |
|
|
-42.3% |
3 |
-6.5% |
4 |
|
|
|
1.9x |
|
|
|
-54.4% |
|
-5.8% |
|
|
|
|
1.5x |
|
|
|
-41.9% |
|
-7.5% |
|
|
|
|
1.6x |
|
|
|
-43.4% |
|
-5.3% |
|
|
|
|
1.2x |
|
|
|
-40.2% |
|
-7.7% |
|
|
5 |
|
0.7x |
2 |
|
|
-49.0% |
1 |
-12.2% |
7 |
|
|
|
0.7x |
|
|
|
-66.4% |
|
-24.8% |
|
|
|
|
1.1x |
|
|
|
-59.5% |
|
-25.0% |
|
|
|
|
0.5x |
|
|
|
-57.5% |
|
-13.5% |
|
|
|
|
1.0x |
|
|
|
-43.8% |
|
-20.8% |
|
|
|
|
0.9x |
|
|
|
-44.1% |
|
-10.6% |
|
|
|
|
-0.1x |
|
|
|
-46.6% |
|
-10.1% |
|
|
|
|
0.8x |
|
|
|
-54.7% |
|
-8.5% |
|
|
|
|
1.0x |
|
|
|
-42.0% |
|
-6.0% |
|
|
2 |
|
1.7x |
6 |
|
|
-35.8% |
6 |
-2.3% |
3 |
|
|
|
1.7x |
|
|
|
-44.6% |
|
1.0% |
|
|
|
|
2.2x |
|
|
|
-32.7% |
|
0.9% |
|
|
|
|
1.4x |
|
|
|
-30.4% |
|
-4.1% |
|
|
|
|
1.7x |
|
|
|
-31.8% |
|
-7.9% |
|
|
|
|
1.8x |
|
|
|
-34.3% |
|
-3.1% |
|
|
|
|
0.9x |
|
|
|
-42.5% |
|
-7.8% |
|
|
RankMoment.
Avg
6
1
7
2
3
4
5
|
Country Risk |
|
|
|
||
|
|
|
|
-3M |
|
|
|
|
|
|
Chg |
|
|
|
5 Yr |
|
|
5 Yr |
|
|
|
Sov |
Rank |
|
Sov |
Rank |
|
|
CDS** |
|
CDS |
|
||
|
61 |
4 |
|
10 |
6 |
|
|
|
|
||||
|
75 |
|
|
12 |
|
|
|
205 |
|
|
31 |
|
|
|
10 |
|
|
0 |
|
|
|
53 |
|
|
8 |
|
|
|
36 |
|
|
9 |
|
|
|
21 |
3 |
|
0 |
4 |
|
|
21 |
|
|
0 |
|
|
|
NA |
|
|
NA |
|
|
|
19 |
1 |
|
-7 |
3 |
|
|
20 |
2 |
|
3 |
5 |
|
|
20 |
|
|
3 |
|
|
|
20 |
|
|
2 |
|
|
|
180 |
7 |
|
-8 |
2 |
|
|
158 |
|
|
-6 |
|
|
|
124 |
|
|
-15 |
|
|
|
167 |
|
|
8 |
|
|
|
238 |
|
|
32 |
|
|
|
85 |
5 |
|
14 |
7 |
|
|
72 |
|
|
14 |
|
|
|
72 |
|
|
14 |
|
|
|
35 |
|
|
2 |
|
|
|
108 |
|
|
22 |
|
|
|
122 |
|
|
24 |
|
|
|
NA |
|
|
NA |
|
|
|
45 |
|
|
5 |
|
|
|
NA |
|
|
NA |
|
|
|
177 |
6 |
|
-11 |
1 |
|
|
213 |
|
|
-51 |
|
|
|
56 |
|
|
5 |
|
|
|
213 |
|
|
-51 |
|
|
|
213 |
|
|
-51 |
|
|
|
101 |
|
|
17 |
|
|
|
71 |
|
|
4 |
|
|
RankRisk
Avg
6
2
1
2
5
7
2
Source: Bloomberg, Datastream, Factset and J P. Morgan Calculations. Note: Metrics are computed on an equal-wtd basis excluding outliers. Historical avgs are computed since 1997 excluding the tech bubble years (00-01)
79
vk.com/id446425943
Mislav Matejka, CFA |
Europe Equity Research |
(44-20) 7134-9741 |
03 December 2018 |
mislav.matejka@jpmorgan.com |
|
CEEMEA Strategy Outlook
David Aserkoff, CFAAC
(44-20) 7134-5887 david.aserkoff@jpmorgan.com Bloomberg JPMA ASERKOFF <GO>
This is an extract taken from ‘CEEMEA Year Ahead 2019: Stock picks for 2019’, published on 19 November 2018
Equity Drivers
Running uphill is hard – for CEEMEA earnings that hill in 2019 has ongoing Fed hikes and likely higher bond yields plus a tougher earnings environment from the stronger dollar and slowing (but still above-trend) global growth. Our forecasts of weaker FX in Turkey (7.0 by end-3Q19) and South Africa (16.50 by end-3Q19) steepen that slope.
However, valuations make it worth the effort – for CEEMEA stocks are at 10+ year high discounts to US equities; MSCI EMEA is at a 12% discount to its five-year average PE and a 5% discount to its tenyear average. For 2019, we think the path to strong returns will be tough; we forecast 7% upside for MSCI EMEA to our new year-end target of 270.
Our key asset allocation calls are: OW Russia; N: MENA, Central Europe and Turkey; UW South Africa. We were hoping to upgrade MENA now ahead of the Saudi index inclusion; but given the jump in geopolitical risks and the drop in the oil price (both since 2 Oct), we are keeping MENA Neutral for now. We make three changes to the CEEMEA Strategy Top Ten – removing Lukoil, Absa and Jeronimo Martins to add Novatek, Standard Bank and OTP.
Our key OW is Russia given the extreme valuations (div yield of 7.9%). Falling geopolitical risks could draw back global investors and re-rate the market; and we need Brent in the $70s to make it work.
Table 1: CEEMEA Strategy – Top 10 Stock Picks
CEEMEA Strategy Country Allocation
OW: Russia
N: MENA, Central Europe and Turkey
UW: South Africa
Return Forecast
Base Case: MSCI EMEA 270 (+7%).
Our base case return of +7% for MSCI EMEA is based on consensus EPS numbers, except for South Africa, where we are below the 22% consensus and above on Turkey where weak FX/high inflation should push earnings up more than the 5% consensus. We also have weak FX forecasts – ZAR at 16.5 and TRY at 7.0.
Bull Case MSCI EMEA 325 (+31%)
Our bull case of 31% upside needs stronger FX, notably ZAR and TRY, plus a high oil price to push Russia forward and a big re-rating in Saudi, driven by MSCI/FTSE index flows. A good election and reform drive in SA could mean a stronger ZAR and a PE rerating, like a “Ramaphoria” rally part II.
Bear Case: MSCI EMEA 225 (-11%)
CEEMEA investors have learned a lot about bear cases in recent years. Oil in the US$60s could hurt earnings and multiples in Russia and MENA. A poor outturn in the SA election could de-rate that market further. CE3 could get dragged down from any EU worries, like Italian budgets or Brexit.
No market has a bigger spread between our bull case (38%) and bear case (-17%) than Turkey, but then TRY has traded with a 3-, 4-, 5-, 6- and 7-handle this year.
|
|
|
|
|
Price |
M. Cap |
% YTD |
JPM |
JPM |
EPS |
|
|
P/E Ratio |
|
|
Name |
Ticker |
Country |
Sector |
Analyst |
15-Nov |
US$ mn |
USD |
Rtg |
PT |
1FY |
2FY |
|
1FY |
2FY |
|
Anglo American |
AGL SJ |
S. Africa |
Materials |
O'Kane |
30,572 |
28,208 |
4.0 |
OW |
45,300 |
2.0 |
2.2 |
10.8 |
9.6 |
|
|
Standard Bank |
SBK SJ |
S. Africa |
Financials |
Storey |
17,069 |
19,859 |
-24.1 |
OW |
20,000 |
17.50 |
19.13 |
9.8 |
8.9 |
|
|
Foschini |
TFG SJ |
S. Africa |
Cons. Disc |
Carrott |
16,222 |
2,781 |
-28.5 |
OW |
18,800 |
11.8 |
13.3 |
13.7 |
12.2 |
|
|
Sappi |
SAP SJ |
S. Africa |
Materials |
Krige |
8,225 |
3,244 |
-20.1 |
OW |
10,200 |
0.7 |
0.7 |
8.9 |
8.2 |
|
|
Sberbank |
SBER RX |
Russia |
Financials |
Goodacre |
200.15 |
66,427 |
-22.7 |
OW |
335.00 |
39.2 |
45.6 |
5.1 |
4.4 |
|
|
Novatek |
NVTK LI |
Russia |
Energy |
Comer |
178.10 |
54,350 |
48.2 |
OW |
190.00 |
822 |
883 |
14.3 |
13.3 |
|
|
Norilsk |
MNOD LI |
Russia |
Materials |
Antonova |
17.65 |
28,255 |
-5.8 |
OW |
19.25 |
2.5 |
2.3 |
7.0 |
7.7 |
|
|
OTP |
OTP HB |
Hungary |
Financials |
Goodacre |
11,390 |
11,198 |
-3.5 |
OW |
14,500 |
1,247 |
1,264 |
9.1 |
9.0 |
|
|
FAB |
FAB UH |
UAE |
Financials |
Bilandani |
14.80 |
43,911 |
44.4 |
OW |
15.00 |
1.11 |
1.22 |
13.3 |
12.1 |
|
|
Garanti |
GARAN TI |
Turkey |
Financials |
Goodacre |
7.82 |
6,269 |
-48.3 |
OW |
8.90 |
1.5 |
1.3 |
5.4 |
6.2 |
|
|
Source: J.P. Morgan, Bloomberg, Updated as of cob 15 November 2018
80