Profit from the Euro Recovery

Wall: So what's you first European stock?

Ormiston: First one is Zumtobel (ZAG), which is an Austrian manufacturer of lighting equipment and lighting luminaires, which is what actually controls the lights. A company I met last year as a result of investigating other lighting companies OSRAM, which was a company that came out of Philips, basically just led me to look at the sector. I got a chance to meet the management of Zumtobel in December, and what I discovered was just an absolutely incredible sort of value.

New Chief Executive and sometimes you meet management and it's pretty worthless. Sometimes you meet them and it's just incredible. Chief executive just gave the most honest assessment of a business which had so much potential, but so many problems and largely outlined what will be a fairly major restructuring program which will come and refocusing really at the whole company to try and tease out its strengths. So, a company which offers lots of value for the future, where the management actually are coming in with new actions basically.

Wall: You did mention that they were honest about the problems they had to overcome, what are these for example?

Ormiston: So, this is a company that has basically been promising the future forever. But unfortunately, as you know in lighting, one thing that's changed is we've gone from filament bulbs to LED and low voltage. The companies have to go through that whole transition, which is expensive if you have factories, which is set-up for one-thing, you need to invest and move and make sure you stay ahead. So, that's been one of the problems they've had. They've also had acquisitions in the past and they've never really integrated them. So, the CEO has got two major areas where he can save costs in their manufacturing plant an also he can make their pretty badly organized sales efforts and marketing efforts, he can actually put them together and save more and be more effective

Wall: So it will be a long-term hold?

Ormiston: Well, hopefully, it will turn into a good long-term investment. But for me, I need short-term catalyst. So, having met the CEO, it was clear that with the full year result he will stand up and he will make a very costed plan. So that will be the first catalyst.

For me, the share price has already performed quite well. It's up 45% in the last six weeks or so. So, ask questions on valuation, but hopefully we'll see more opportunity that can hold it for longer period.

Wall: What's your second stock?

Ormiston: Second stock is Smurfit Kappa (SKG), which is an Irish packaging group, quite a different story. One thing it does share in common is it's about restructuring. It's performed very well and actually it was a company that wouldn't have been on my radar in the early parts of its good performance, but it was a very highly levered company. It struggled in financial crisis and ended financial crisis with too much debt. Because that strategy had been to takeover lots of other mills around the world, take out cost, take out competition, but post crisis what they've done is they've restructured their finances very well, which is something which we find very important. They've carried on the good process of taking out bad price competition in the industry, instilling discipline, and actually for me this is always a quite a good theme.

Whereas an industry, which is quite capital-intensive, where there have been certain, usually privately owned players who have damaged pricing and where the dominant players can become more dominant, increase their market share and then instill price discipline. That's the phase we're in with Smurfit now. So we see rising prices, rising market share, and because they've sorted out their finances, rising distribution of dividends.

Wall: You mentioned there that they had expanded globally. Does this mean that they're sensitive to what's going on in emerging markets at the moment, or are they very European centric?

Ormiston: No, they are incredibly global. So, fortunately, because each individual emerging market in this industry is generally not that big, it's not a massive issue, but they do have exposures to both the Venezuela and to Argentina, so devaluations, repatriation of cash, are an issue and are a risk.

But for this group, packaging is still generally quite – still quite a big Western European developed world kind of industry, so the majority of the business is in the developed world.

Wall: What's your third stock?

Ormiston: Third stock is CTS Eventim (EVD), which is a German ticketing company. Again, this is an evolutionary story. Interestingly, it's still 50% owned by its founder, who backed – when he started the company, no one really saw that ticketing was going to be a big business. Is a big business, obviously in the U.S. We're all familiar with Ticketmaster.

But he came from his German roots, dominated Germany. And back in the day when it was traditional tickets at box offices, paper tickets. What's amazing with Eventim is that they've sold the technology revolution coming very quickly. For them, it's helped them or increased their dominant position in terms of the market, but it's also increased their margins and their ability to save cost.

They don't have to print tickets any more, we have to print tickets at home. It's very much easier for them to reach us in our sitting room, when we want to book tickets. It's also the brand gets stronger, as we know on the internet, the dominant brands are the ones that will continue to win.

Wall:  Is it very competitive market? You did mention Ticketmaster there. When you have such a global dominant player in an industry what hope is there for market penetration?

Ormiston: Well, the interesting one is you basically needs to be one or two industry –country or territory. If you're not there, then you basically just don't – you shouldn't really bother.

Interestingly, Eventim have had excursions into Ticketmaster territory, Ticketmaster (settling) into Eventim. Usually it doesn't work. You don't end up with the right venues, you just don't end up with the inventory. What you need? You need the big names to be on your websites, the right venues.

So, they're very, very dominant in Europe. That will remain the case. They'll will be never be the global play, they might have regional exposures in big territories like the U.S., but Ticketmaster will forever be the big player there. Eventim will probably always be the big player in Europe.

Wall: Ian, thank you very much.

Ormiston: It's a pleasure.

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