August 2018

Equity markets saw contrasting trends in August. The US market, proving more sensitive to the immediate effect of President Trump’s tax measures on corporate profits than to their long-term impact on the budget deficit, continued to make gains (with the S&P 500 up 3%). Meanwhile the European market lost ground (-3.3% for the Eurostoxx 600) in response to fears unrelated to companies themselves, but no less real: from the US in terms of global trade, and from Italy on the sustainability of the European project.

Rouvier Valeurs and Rouvier Europe lost 1.4% and 2.6% respectively over the month and are now at discounts of around 20% and 24% to our valuation of their fair prices. The fall in Rouvier Évolution was limited to 1.1%, whilst Rouvier Patrimoine gave up 0.4% in line with its bond market benchmark.

The inherent discipline of our equity investment process results in the sale of shares where price gains have taken them above their fair price, and the strengthening of holdings in companies, after an examination of their situations, which offer increased upside potential following a market upset. Thus Atos, the biggest position for Rouvier Valeurs (4.3%) and the second biggest for Rouvier Europe (4.7%), which gave up 10% over the month – with the resulting impact on the funds’ performances – provided a perfect illustration of the febrile markets we are facing and of the irrationality it is our duty to take advantage of.

We have followed this attractive IT company over a long period, and have regular face-to-face meetings with the management. A European company, it is the product of successive mergers: first with Siemens Solutions and Services, which has proved a model of Franco-German partnership; then with Bull, making it the only European player in the strategically important supercomputer sector; and finally with Xerox’s IT outsourcing business, strengthening its position in the US market. It has seen a constant increase in the value added of its services, notably thanks to the development of data management solutions (including a partnership with Google in cloud services), platforms, cyber-security and payment and transaction processing services through its Worldline subsidiary. These fast-growing speciality businesses account for 27% of its turnover.

The shares are down 16% since the beginning of the year, following the acquisition of Syntel in the US, which has been poorly understood by the market, and then in August a broker’s note on factoring practices which we found to be one-sided and unfounded. Atos is currently valued at €11 billion, and its 70%-owned Worldline subsidiary at €7 billion, giving a valuation for Atos’ stake of €4.9 billion. This implies that all the rest of Atos’ businesses are valued at only €6.1 billion, or less than seven times expected non-Worldline earnings this year. This irrationally low valuation opens the way to strong upside potential.

Monthly Factsheet