Share markets throughout the world moved higher as Greek made progress towards a deal with creditors, increasing the probability that an exit from the Eurozone will be avoided. The Greek equity market alone advanced 9% after the news was released.
Could this be the turning point towards a Greek and European turnaround? Perhaps. Only time will tell.
What we can be more certain about is which companies stand ready to benefit from any improvement in economic growth, employment and consumer spending. We take this opportunity to review some European businesses we have a favourable opinion of, who have large European operations and stand to benefit from an economic improvement in the region.
Hugo Boss AG (BOSSn.DE)
Hugo Boss is a German multinational manufacturer of high end men’s and women’s fashion apparel through its Hugo and Boss brands. Since its founding in 1924, Hugo Boss has established itself on the global stage, building a diversified sales mix with 40% contributed from sources outside its European core market. Further, as a well regarded upmarket brand, Hugo Boss also stands to benefit from the emerging consumer class of China. Hugo Boss operates a vertically integrated business by conducting design, manufacturing, marketing, distribution and direct retail sales all in house. Looking forward, management have identified two avenues for growth. The first is a continuation of the retail expansion with the target of reaching 75% of sales through direct channels by 2020, a powerful driver of margins if achieved. The second being an expansion of the sales contribution from womenswear, which currently represents 10% of sales with market share of less than 0.5% in European markets.
Diageo PLC (DGE.L)
Diageo is a dominant player in the global alcoholic beverages business through its ownership of numerous leading brands, including Johnnie Walker, Smirnoff, Crown Royal and Guinness. Diageo focuses on the high margin spirits segment which history suggests has been the most rewarding segment of alcoholic beverages for shareholders. Estimates from Databank suggests Diageo has a 27% share of the global market, leading its closest rivals Pernod Ricard and Bacardi. Diageo derives 42% of its sales across Eastern and Western Europe and hence is a strong beneficiary if economic conditions improve across the region, however its presence in China and emerging Asia is building which is supporting growth in the interim. Diageo currently has a low quality rating, an issue we see as transient in nature and likely to improve in time.
Intertek Group PLC (ITRK.L)
Intertek is a global product testing, inspection and certification multinational based in the UK. Intertek operates in over 100 companies, the most important region being Europe with 33% of revenue. Currently, the vast majority of product testing and certification is conducted in house by product designers and manufacturers. However in recent times, a trend has emerged for corporations to outsource this function due to greater levels off efficiency, lower litigation risk and reduced cost. The blue sky potential for Intertek is a continuation of the recent trend, which some estimate could increase the total market to $100B annually, a tenfold increase from the $10B currently serviced by the three major players (including Intertek).
Clime Asset Management (Clime) owns DGE.L and ITRK.L on behalf of various mandates where it acts as an investment manager.