I am in Paris for a few days this week attending one of the largest conferences devoted to the consumer staples and discretionary sectors globally. Given our significant holdings in almost all our mandates across these sectors I thought I'd share some of my macro takeaways.
We are bombarded by the news with constant reminders of the difficulties in Europe both in terms of the consumer sector, but also the health of some countries governments. I don't know about you, but I am tired of hearing it and I assure you many of the management teams running these European listed companies are suffering from similar fatigue. For several years now they have been managing in a world where organic growth has moderated in terms of both sales and profits and where only the strongest most resilient business models will survive.
Despite what we read in the press about the uncertainty and concerns economically, there are European consumer companies across a multitude of industries (brewers, food retailers) that are well advanced in dealing with these issues. Many of these companies have positioned themselves very well for a consumer recovery by cutting costs and improving their balance sheet. The opportunity to consolidate the weaker players exists as well, but we'd expect them only to deploy capital when they can predict with high confidence a return on that investment (sounds like our strategy!). Many are also 20-30% cheaper than their North American peers given the reduced appetite globally for European stocks.
It is no coincidence given what I've outlined that we have been populating the funds with select European-listed businesses in sectors like consumer staples, where the visibility is high (people in France buy bananas in recessions and irrespective of the GDP growth rate in China or other macro concerns) and where we believe the risks are more than reflected in the discounted valuations. I would not be surprised to see one to two new holdings make it into our top 10s from this conference. Stay tuned.