February 2017

This month, we return to the analysis of company earnings publications, selected for the lessons we can draw from them in terms of the perception of the environment and the management of our funds.

BASF, which we see as a good barometer of manufacturing activity, reported organic volume growth of 2% in 2016, with a marked acceleration (to 6%) in the fourth quarter. Given negative pricing effects (-4%), the disposal of the gas storage business (-15%) and a negative currency effect (-1%), reported revenue was down 18%. In contrast, operating margins improved significantly, from 9.4% to 10.6% on a like-for-like basis (from 9.6% to 11% on reported figures).
With the shares having gained 25% over the year to date, they no longer offered a discount and our investment discipline led us to sell our position.
The company’s growth forecasts for 2017 are identical to those for 2016 (2.3% for the global economy), with further slowing in Chinese growth and an end to the recessions in Russia and Brazil.

 Peugeot’s 2016 figures were healthy, with revenue up by 2.1% and more significantly an 18% rise in operating profit and a doubling of net income, which will allow the company to pay its shareholders a dividend this year, after six lean years.
This performance came from a recovery in the cars division, with operating margin of 6% – having been negative at -2.8% as recently as 2013 – and free cash flow of €2.7 billion (negative cash flow of €1 billion in 2013). This illustrates the operating leverage that a strong management team can obtain in a recovery in a cyclical sector, and the stock market leverage that follows as the market becomes aware of the progress made: the shares have gained nearly 90% since July 2016, and still offer enough upside to warrant their continued place in the Rouvier Europe compartment.
The company expects the car market to be stable this year, except in China, where it expects 5% growth.

Nestlé has reported organic growth of 3.2% for 2016, below the 4.2% it managed in 2015 but with further improvement in operating margin (15.3% in 2016, from 15.1% in 2015). These results were driven by a strategy of product renewal and a ‘premiumisation’ of the range, which allowed good protection of volumes in mature markets, against a background of fierce competition, and increased pricing power with middle class customers in emerging markets.
The company expects organic growth of between 2% and 4% in 2017, and is now looking towards steady growth of around 5% by 2020, a figure which is above the potential trend line of the global economy but still below the historical trend.
The market’s confidence in these prospects and in the continuation of a dividend offering a yield of over 3% explains the safe-haven nature that this stock continues to enjoy. We believe it is at its fair value, and we have kept a position in the Rouvier Valeurs portfolio.

Rouvier Valeurs is now nearly 90% invested in equities, of which 75% are listed on a European market. The net asset value of the fund is at a record high since its creation in 1991.
By contrast, its hedged version, Rouvier Évolution, had equity exposure of 70% after hedging at end-February, with hedging costs subject to continuous improvement.
Rouvier Europe is fully invested (at 98%), with 33 positions in the portfolio. The portfolio shows a 26% discount to our assessment of its intrinsic value.
For Rouvier Patrimoine, meanwhile, the management of its bond allocation continues to focus on caution and liquidity with a preponderance of short-dated German government debt (nearly 54% of the portfolio). Its equity component is stable at around 19%.

 

 

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