Change your style or broaden your perspectives?

11th Jan '14 by PhilHofGrowYourDough

19 comments 17719 reads

I've been scratching my head slightly at some of the choices people are considering here.

The theme as been ... it's hard to find value so ...

1) I'm going to modify my investment criteria

2) Move to cash (not a bad option of course. I'm currently 14% cash)

Nobody seems to be considering broadening the pool of stocks they pick from and given that Stockopedia has a European version I'm surprised. In fact there is no european stock discussion apart from Ben's articles.

However, I've found I don't have to modify my criteria to uncover high quality European stocks with value or growth potential. In selecting them I might ask for a slighty better risk return profile to cover increased costs, e.g. I have to telephone trade for some smaller european stocks.

Here are some examples that might tickle your fancy ... and remember the significance of the Stockopedia ranking increases in the European version as it considers 7000+ stocks.

MGI Coutier SA (EPA:MGIC)

MGI Coutier SA is a France-based company specializing in design, manufacturing, and marketing of automotive equipment. The Company’s activities are based on two main production lines: Fluid Transfer and Mechanisms. Fluid Transfer sector provides services in storage, treatment and diffusion of fluids and products include manifolds, ducts, air filters, cam covers, blow-by heating connectors and pipes, ventilation of battery compartment, cooling systems, fuel vapour pipe, dosing pumps, protective casings for additive systems and heated pipes for selective catalytic reduction systems, among others. Mechanisms sector manufactures opening, closing and articulation products such as doorstops and hinges, pedal boxes and under-bonnet mechanisms, locks & strikers and door handles and fuel caps, among others. The Company also has other divisions: Expertise, Research & Development, Environment and Aftermarket.

MGI Coutier SA (EPA:MGIC) passes 11 Guru screens and as a Stock Rank of 99.

It as a strong history of growing revenue, profits and EPS.

It does have some debt but it doesn't appear excessive.

I'm currently sat on a 28% gain with this selection.

BAKKAFROST (BAKKA)

Bakkafrost P/F is a Faroe Islands-based fish farming company. Its main business area is aquaculture…

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igozo13

11th Jan '14

It was interesting to read your comment as I own 5 out of 11 stocks that you commented on.

PhilHofGrowYourDough

Fantastic igozo13!

Which ones do you own?

Nordic stocks: BAKKA, AWDR, SALM, SPU, NOLA. I recently bought VITR which is a kind of similar to your CEVI.

Are there other Euro stocks that you hold?

Vitrolife AB (STO:VITR) would have failed two criteria on my Growth screen as I look for:

- 3m Average Volume > 40000 (trying to avoid illiquid stocks)
- PEG < 1 (I'm looking for cheap growth stocks)

Yes, about 30 nordic stocks.

I was thinking about Cellavision too but at the end I chose Vitrolife because of the consistent growth of both EPS and revenues

12th Jan '14

Hexagon Composites ASA (OSL:HEX) looks like an interesing Norwegian growth opportunity.

Hexagon Composites ASA is a Norway-based company engaged in the development and production of composite products. Its main activity is divided into three business areas: Composite Containers, High-pressure Containers and Composite Reinforcements. Within the Composite Containers area, it operates the Liquified Petroleum Gas (LPG) Containers product area. Within the High-pressure Containers are, it operates such product areas, as Compressed Natural Gas (CNG) Containers for Commercial Vehicles and CNG Containers for Passenger Cars. Within the Composite Reinforcement business area, the Company operates the product area Wind Turbines and Constructions. As of October 1, 2012, the CNG Passenger Cars product area was spun off from the Company’s subsidiary, Ragasco AS and merged with Raufoss Fuel Systems AS, which changed its name to Hexagon Raufoss AS.

Looks like a potenial step change in revenue and profits.

Forecasts are ramping up ... particularly for 2014 where there as been a 28% increase in the last 3 months.

Q3 interims in October were strong :

Hexagon Composites ASA achieved a turnover of NOK 391.4 (234.1) million and an operating profit before depreciation (EBITDA) of NOK 60.7 (11.8) million in the third quarter of 2013. Operating profit (EBIT) was NOK 42.0 (-1.7) million and profit before tax was NOK 34.9 (-9.0) million. All business areas showed a positive operating profit for the period.

Highlights from the quarter:

Cummins-Westport started ordinary sales of its new 11.9 litre gas-powered engine. The engine has been very well received in the market and has led to strong growth in demand for Hexagon Composites' gas tanks for heavy duty vehicles in North America.

Most of the end customers in North America are reported to be choosing CNG rather than LNG systems. Hexagon Composites is the market leader in CNG tanks.

For full details see here

The bits that stand out (bolded in text above) is the apparent selection of CNG tanks as the preferred option in NA where Hexagon Composites ASA (OSL:HEX) are the market leader.

It doesn't scream cheap though ... fwd PE of 22, PEG of 0.95

I suppose it's dependent on the size of the North American market and whether other regions follow that pattern.

I'd appreciate any thoughts.

Cheers

Phil

mpat89

I would like to be invested in foreign shares but there are a few issues:
- I am uncertain about withholding tax and believe that over the long term, such deductions would make a considerable difference yet would not be worth my time to reclaim individually.
- Foreign exchange risk
- My ISA provider says that FX balances cannot be held and so each transaction must be converted to/from GBP with a 2% markup, 2% being extremely large when you think it's 4% extra just to go in and out of a foreign share.

Any advice? Do we think that in general, the top 10% (by Stock Rank) of European shares will outperform the top 10% of UK shares? I was pondering using a non-ISA account to maintain a portfolio of US stocks one the feature becomes available since I imagine the Universe will be fairly large.

I certainly agree that Hexagon Composites ASA is an interesting growth company and I would rate it as a "strong buy.

Hi mpat89,

Thanks for your comments.

I am uncertain about withholding tax and believe that over the long term, such deductions would make a considerable difference yet would not be worth my time to reclaim individually.

I'm not sure what the term 'withholding tax' means in this context. It is true that different regions might well have taxes involved. With respect to long term impact on a portfolio then that only holds if you can find UK stocks that perform as well as the Euro stocks and that's the point ... Posters here are noticing a lack of UK opportunities and so they appear to be moving to cash or tweaking their investment style.

With respect to foreign exchange risk & Top 10 Stock Rank Euro vs Top 10 Stock Rank UK ... it's clear we think in a slightly different way. Personally I'd never buy the top 10 of either unless they met my other criteria. So when selecting stocks to buy I look for the potential first and the costs are secondary.

An example for me was Let's Gowex SA (MCE:GOW) where I'm currently sat on a 168% gain ... the increased dealing costs & FX costs become irrelevant. Perhaps I've been more aggressive in this bull market than I would have been in a less favourable climate. I've also tried to select what I consider to be solid markets, e.g. Norway, Sweden, Germany. Some argue that France has it's risks and obviously Spain is an ongoing concern but Let's Gowex SA (MCE:GOW) was such a great opportunity for me it was worth the risk and I've top sliced my original stake so it's a free ride from here.

I'm by no means an expert, in fact far from it, perhaps I'm being naive. Time will tell.

I hope others will chip in with their comments and observations.

Just found some interesting articles on 'withholding tax' ...

http://the-international-investor.com/investment-faq/paying-uk-tax-foreign-shares

http://the-international-investor.com/investment-faq/reclaiming-withholding-tax-foreign-dividends

http://the-international-investor.com/investment-faq/holding-foreign-stocks-isa-sipp

Just to say that all of my investments are held within a SIPP and ISA's (wife's too)

My understanding is that the 'withholding tax' is applied to dividends. So given I hold my investments inside tax efficient wrappers all that's required is for me to contact my broker to ask if they take care of this.

Also be aware YouInvest's (formerly Sippdeal) FX rate is 1%

intuitive6191

13th Jan '14

I'm not sure what the term 'withholding tax' means in this context

A significant barrier to holding European stocks directly in nominee accounts.

For instance, Ferrexpo's head office is in Switzerland and good luck to anyone who has tried to reclaim Swiss witholding tax when held in a nominee account. It's easier to go 15 rounds with Mike Tyson.

As mpat89 rightly points out, the currency charges are also a major headwind. Once all this is taken into account you have to be quite sure that your European stock is going to out perfrom your UK stock by a fair margin. I would usually search out an investment trust for overseas markets. A cost effective way of getting exposure with also the possibility of further gains through the narrowing of any discount.

Hi inuitive6191,

From my admitted limited knowledge 'withholding tax' is only applicable to dividends. Surely only a major issue if your strategy is dividend focused?

Also 1% FX rate on a buy and 1% on a sell is hardly a major headwind ... surely spreads on small cap UK stocks are more of a headwind .

With respect to trusts and funds ... I think I can do a better job and I'd rather pay increased dealing costs than management fees.

I dont want to give money away but my point still is there are better options in Europe but you may have to pay a little more.

cig

Re withholding tax, you may be a bit optimistic.

UK law doesn't apply outside the UK, so the UK tax status is often irrelevant, e.g. in an ISA you would pay withholding tax the same as in a dealing account. Your broker is not involved, they will typically receive the net after withholding at source in the listing country.

SIPPs can help if the double-taxation treaty includes mutual recognition of SIPP-style pension schemes. The US does, and good UK brokers do the paperwork for you so that you get tax free US dividends. I've not heard of it being done for any other countries, so you're usually on your own having to contact the local tax authorities in the listing country to get a refund (which can be done, but I expect it to be cumbersome, I don't bother myself at the moment). Do let us know if you find a broker that does it for you for a country other than the US, it would be good news!

but dont take my word for it ...

Some of the best performing Guru Strategies are Kirkpatrick Value & Bill Miller Contrarian Value. They dont tend to generate a lot of stocks. The UK version Kirkpatrick Value currently has 2 stocks whilst the Euro version has 5 stocks. The Miller UK version has 0 stocks whilst the Euro version has 8 stocks.

Given the performance of those strategies one might argue that there's a good likelihood of a strong performance of the current selections and given the historic returns you might be prepared to accept a 2% FX hit, increased dealing costs and some tax on your dividends.

Each to their own
Best of luck
Phil

Hi Phil,

you wrote in your comment about a Spanish telecommunication company Let's Gowex SA (MCE:GOW). Let me point your attention to a Swedish telecommunication company Bahnhof Publ AB (STO: BAHN B). Look at its steady revenue and EPS growth over the past 7 years! It is not surprising that the stock price has increased by a factor of 10 since 2009 and keep growing. (The company passes 4 Stockopedia screens). The company has its business niche and a competitive advantage in providing secure communication (it hosted, for example, Wikileaks).

High quality no doubt, strong cashflow generation too.
Not enough volume for me though ... seems to illiquid for me.

Thanks
Phil

Change your style or broaden your perspectives?

MGI Coutier SA (EPA:MGIC)

BAKKAFROST (BAKKA)

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PhilHofGrowYourDough

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