Focus on European export companies
European equities continue to offer potential despite the financial crisis. European companies with exports to new markets and the US hold strong positions. Adidas is one such company.
The financial crisis has sent many European equities tumbling and raised uncertainty among investors about the European equity markets. However, it is still possible to make profitable investments in Europe, according to Hans-Henrik Garder, Senior Portfolio Manager in Danske Capital.
“The debt crisis in Southern Europe obviously matters a great deal, and equity price trends hinge on policy decisions to a greater extent than previously. However, there is still considerable investment potential, particularly in Northern European companies with exports out of Europe. And there are many European companies in that universe,” Hans-Henrik Garder says.
Adidas has a strong position
Adidas, the sports apparel manufacturer, is a good example. Senior Portfolio Manager Allan Nielsen follows Adidas closely; he says that the company has been a really good investment although the company was not added to the portfolio until November 2008, just as the financial crisis broke out in earnest. Adidas is currently included in the fund Europe Focus.
“Adidas is attractive because of their global exposure and their business model. The company has a solid geographical exposure with 30-40% of sales being targeted at growth areas. In consequence, Adidas is a European company exposed to the global growth markets,” Allan Nielsen explains.
Adidas forecasts two-digit growth rates for Eastern Europe, including in particular Russia, as well as for the entire Chinese market and Latin America.
Adidas potential based on several factors
Adidas is also attractive because of the huge potential for growth in times of crisis. People tend to favour strong brands during times of crisis, and Adidas is strongly positioned here, Allan Nielsen explains. Moreover, with Adidas’ takeover of Reebok in 2004/2005 the company stands a good chance of boosting earnings. So far the apparel maker has had difficulty integrating Reebok in its business but has embarked on a new strategy which has paid off in the past few years and adds further growth potential, according to Allan Nielsen.
Finally, there is increasing focus on Adidas’ operation of own stores, which account for one fourth of the company’s sales. These include flagship stores, ordinary stores and outlets. Adidas has a particularly strong presence with own stores in Russia. Here Adidas is practising on creating even better stores, and if successful, they will be generating huge gains, Allan Nielsen says.
Since being added to the portfolio in 2008, the Adidas stock has yielded a return of 111% compared with the European benchmark, MSCI Europe, which gained 34% in the same period. In 2011 alone, the stock rose 4% compared with an 8% decline in the benchmark.
Other examples of European companies with global exports are Nestle and pharmaceuticals group GlaxoSmithKline, Sanofi and Spain-based Inditex. Another company is Telenor with major subsidiaries in Malaysia, Thailand, India and Russia.
