3 European Growth Stocks

Profit from the recovery in Europe from small, domestically focused stocks. Investment trust manager Ollie Beckett hand-picks his favourites

Emma Wall 11 February, 2014 | 10:02AM
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Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall, and here with me today to give his three stock picks is Ollie Beckett, Manager of the TR European Growth Trust (TRG).

Hello, Ollie.

Ollie Beckett: Hi, good morning.

Wall: So looking at Europe, bit of a mixed bag, what's your first stock?

Beckett: It's a company called LPKF, a small German company, who make laser machines effectively.

Wall: When you say laser machines, are we talking James Bond style guns, or are we talking machinery, what do these do?

Beckett: Essentially, one of – yeah, it all sounds very so Star Wars, but I mean one of the things is it allows, for example, plastic antenna is to be put into the metal – into metal casing in mobile phones. So it saves space in things like mobile phones and more and more if you pick up a Samsung phone, the antenna will be put into the casing of the phone. Equally, increasingly, we're using laser for welding to replace glue.

So if you were to take, I don't know, if you took Usain Bolt's running shoe, okay, no longer would it be glued, you'd actually laser weld it. Again, their advantage is because glue can cause contamination, particularly we start looking into the food space. So I think it's going to be a huge growth area, and we've owned it for about 18 months, but I expect it to do well going forward.

Wall: With the niche stock like that, I expect it's a – it can go either way, you're either sort of a master of that particular market, or it so niche that it can go under, which one is this?

Beckett: It's essentially a master, I mean they've had a few issues with the Chinese trying to copy them and breach a few patents. But essentially it's dominating that market and it's a very – it's early stage market, particularly the welding side of it.

Wall: So what's your second stock?

Beckett: My second stock is Lafarge, and mainly why do I think this is interesting? Most people at the moment are very negative on France, they are very derisory about it, Mr. Hollande for he doesn’t help and essentially the Lafarge is – you don't get much more French than Lafarge. What do they do, it's a construction company, have a service business, but they also operate the toll roads. It's a joint venture with the Australian Company Macquarie.

Wall: Is it a domestically focused stock? Is it just in France or is this European wide?

Beckett: There's some international construction, but essentially it is a very domestic stock, but whilst the French economy is maybe lacking and slow to reform, people are still using roads and actually road usage is increasing.

Wall: Is this an income as well as the growth stock?

Beckett: Yeah, we'll get a small dividend, but I mean really I think it's just a significantly undervalued asset because most people would just think France is terrible, but I think it's a significantly undervalued.

Wall: What's your third stock?

Beckett: My third stock is De'Longhi, which a lot of people will see in their kitchens.

Wall: Making coffee machines?

Beckett: Yeah, they are one of the two companies that has the right to make Nespresso machines, which is continuing to grow. Coffee is almost an aspirational drink in parts of Asia, for example, but the growth I expect to come really is from their recent acquisition of Braun.

Wall: What are risks with that company then?

Beckett: There is a risk that the whole Nespresso machine things become a fad and coffee machines becomes a fad and that slows down and becomes a slightly saturated market. I think there is still a lot of room for growth.

You add things like frothing of milk and its efforts to make a cappuccino. But I think actually lot of the upside is going to come from this acquisition of Braun, which they bought of Procter & Gamble and it really lost its way under Procter & Gamble. It used to be owned by Gillette. So sales have really declined under Procter & Gamble, and if they can get that brand back up, and it's a very strong brand in certain markets, particularly, Germany, I think the hopes are very good.

Wall: Offering them diversification of product?

Beckett: Yeah, so it takes them more and more into sort of away from coffee machines and more and more into the kitchen. And they also and Kenwood, for example.

Wall: Ollie, Thank you very much.

Beckett: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
TR European Growth Ord147.00 GBX-1.01Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar