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- European Opportunities capitalises on the Novo Nordisk rally to beat the market
European Opportunities (EOT) has released its interim results for the half year ended 30 November 2023. Selected highlights as follows:
Alexander Darwall, VIO of Devon Equity Management (EOT’s investment manager), commented:
“The outlook for the portfolio is shaped against a more difficult economic backdrop. Whilst interest rates are expected to decline over the next eighteen months, this is only one factor to consider. Buoyancy of European consumer spending is likely to be tested in 2024. The market has been sustained by the resilience of the European economies but as household savings are used up, and as quantitative tightening grinds on to reverse the expansionary effects of quantitative easing, in due course, the present benign economic conditions will give way to a much tougher economic climate.
“There are signs of weaker consumer spending. Energy costs are at present lower than might be expected with various conflicts around the world causing disruption to energy trading. Yet the risk of higher energy costs remains a significant consideration not least because Europe’s rapid energy transition risks putting European manufacturers at a relative disadvantage. The combination of weak public finances and the need for increased defence spending is likely to squeeze discretionary consumer spending. This provides a further incentive to invest in companies that have strong extra-European businesses.
“Trade conflicts are an increasing concern. Globalisation has been a salient feature of economic growth in recent years and the growing threats to efficient global trade flows are clearly damaging. We are careful to try and identify companies whose overseas trading falls below the radar of political interest.
“The outlook for the portfolio is, we think, improving. Our portfolio is less exposed to weaker consumer demand and the risk of higher input costs. The extent to which the portfolio delivers is much less macro related, and more driven by individual companies crystalising their transformational opportunities. Concluding successful clinical trials, continued innovation, resiliency of business models, and geographic expansion are some of the outcomes that we anticipate from our investee companies this year. These companies have the necessary ingredients for success: we expect them to deliver.”
[QD comment: It has clearly been a good six months for EOT with the manager’s confidence in Novo Nordisk rewarded, showing the value of good stockpicking. Given its focus on ‘special’ growth companies (these typically benefit from strong IP, an advantageous industry structure, strong balance sheets, high recurring revenues, and multiple avenues for growth), it should be able to weather economic downturn, although its ultimate performance will be driven by whether its manager has got its stock selection decisions right, rather than the performance of the European market more generally. Though given the recent outperformance, combined with the tender offer and buyback, the tide seems to be favour of EOT’s shareholders currently.]
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