European equity star Bendahan wins big on Greek and Irish bets

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Forfeiting defensive growth for deep value has enabled Banque SYZ’s Eric Bendahan to more than double the performance of the average European equity fund manager covered by Citywire’s analysis.

Posting a return of 40.2% over three years to the end of November 2012, the Citywire A-rated manager puts his significant outperformance down to a well-timed retreat from expensive quality names.

Explaining the rationale for his strategy the manager of the OYSTER European Opportunities and OYSTER European Selection funds said: ‘There was a point in the summer where a lot of defensive growth companies, like British American Tobacco and SABMiller were quite close to the price target we set.’

‘They are still very popular among fund managers and have done very well over the longer term but in my view I think looking at the valuations versus the type of growth prospects on offer, these companies are no longer ideal. I decided therefore to sell them and focus on very high growth companies.’

The search led him to head to Europe’s periphery with companies in both Greece and Ireland providing a significant performance boost in his Selection fund, launched in 2011.

Southern periphery

‘Greece has been a hunting ground, we like Motor Oil because in our view it’s the best refinery in Europe, if you look at complexity metrics, it’s just the best.’

The firm, he says, is also very flexible in terms of input as it can either buy heavy fuel from Russia or light fuel from North Africa but because it is Greek, its 35% free cash flow yield and 12% dividend yield were trading at a PE of just 4 times.

‘The great thing about Motor Oil is that even in the event of the worst possible outcome; a Grexit or a debasing of the currency to Drachma, because it’s a dollarised company and it’s an exporter, even if Greece exits the euro, they‘ll make even higher margins.’

‘It is a genuinely good asset at the wrong price,’ he said.

The position is among Bendahan’s OYSTER European Selection fund’s top performers since the end of July, returning 75% as of the end of November 2012.

Irish bet

Turning his attention to Ireland, packaging company Smurfit Kappa Group is another favourite. Bought in the summer, Bendahan was attracted to the company, because the rest of the market was paying it little attention.

‘The market seems to have the wrong perception. It is seen as very cyclical, very commodity driven and with a lot of leverage but the reality is it has 30% exposure to the Latin American packaging market.'

'Even after 2012 in Europe their revenues are probably going to end up being flat. It’s not great but it shows that the business hasn’t been affected by the recession.’

He thinks the free cashflow the company is now generating, coupled with the increasing appetite for the debt market, Smurfit can significantly reduce its financing costs over the next few years.

United Kingdom

In UK online fashion store ASOS, Bedahan can also see significant potential and he used a temporary dip in the share price to take his position.

‘It was never a cheap company but what attracted me was the share price tanking in the second half of 2011. The UK market had slowed down for them which led many people to think the company was ex-growth especially in the UK. For me this was an opportunity and an attractive entry point. It’s worked out to be our second best contributor to performance for 2012.’

‘It’s up 110% and is a stock that can double every three years. It’s been growing consistently at 35% per year plus and I think there is still great potential in the US and emerging markets for the brand.’

Family-owned business have been a mainstay within Bendahan’s portfolios but with one UK listed company, low cost airline EasyJet, the Banque SYZ manager admits he was taking somewhat of a gamble.

‘It has been controversial at some points but the management team at EasyJet has done a very good job in capturing the best fleet, securing the best slots and improving profitability.’

‘I should have bought it a bit earlier but it’s only on 9 times earnings and I think the fundamentals are quite good. Meanwhile capacity is exiting the industry. British Airways is cutting aggressively on short haul and EasyJet is now able to capture a greater share of the business.’