Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and joining me today is Rachel Winter from Killik, to give her three stock picks.
Hello, Rachel.
Rachel Winter: Good morning, Emma.
Wall: So, what's the first stock today?
Winter: The first company is Deutsche Post (DPW), which owns the delivery company, DHL. And Deutsche Post, it really owns the biggest logistics network in the whole of Europe. So, for us, it's a play on the growth of ecommerce across Europe.
I think here in the U.K. we are very used to ecommerce and online deliveries, but Europe really has been a bit slower to pick up on this trend. So, we think there's a huge amount of growth to be had here still. And if Deutsche Post is the one delivering all the parcels for this, we think there is a lot more growth for them.
Wall: And how competitive is this market? We're familiar with some of the names in the U.K. who deliver some of our goods. Across Europe is DHL or Deutsche Post, is that the dominant player?
Winter: Definitely, yeah. So, by far, the biggest market share. And it's a market sector that's very hard to break into because the introductory costs are so high. So, it's taken them years and huge amounts of money to build their network and I think it would be very difficult for anyone else to break into it.
Wall: And what's the second stock today?
Winter: Second stock is another German company actually called HeidelbergCement (HEI). So, as you can guess, they produce cements. About 8% of their revenue comes from the U.K., about a quarter comes from Europe and then another quarter comes from the U.S. And really, this is a play on the increase in spending on infrastructure.
So, I think, over the last couple of decades global infrastructure spending has been incredibly low and we have got a situation whereby roads, railways, airports really do need serious upgrades across the whole of the world. So, that will require huge amounts of cement. So, that's why we think Heidelberg will do well.
Wall: And we've heard this week from the IMF that global growth remains robust. Do we need strong economic growth for a company like this that's dependent on infrastructure spend to do well?
Winter: Ideally, yes. But because infrastructure spend really comes from the governments, I think, it will be less affected by a slowdown in growth than other sectors such as consumer.
Wall: And what about the third and final stock?
Winter: Third one is a company called Tencent (00700). This is actually one of the top 10 companies by value in the whole world but it's not a company that we really use over here. So, I think, a lot of people haven't really heard of it. It's actually China's leading internet company. One of the largest Internet companies in the world.
It's actually the biggest mobile gaming company in the world and also the biggest online payments company in the world. I think by number of users, it's 3 times the size of PayPal just for mobile payments. I think half of all time spend on a mobile internet device in China is spend on one of Tencent's app. So, it's doing incredibly well and we think the growth potential is huge.
Wall: And to talk to that growth potential, obviously, China is a huge market and it's enough just to dominate that part of the world. But does Tencent have ambitions to be a global player?
Winter: It does. It definitely is expanding, earnings are growing at more than 20% per year. I think particularly on the gaming side, I think there is potential for those games to move over inside the U.S. and also to Europe.
Wall: Rachel, thank you very much. This is Emma Wall for Morningstar. Thank you for watching.
