Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and I'm joined today by Jake Robbins, Manager of the Premier Global Alpha Growth Fund to give his three stock picks.
Hello Jake.
Jake Robbins: Good morning.
Wall: So, what's the first stock?
Robbins: So, the first stock we like at the moment is Erste Group (EBO) which is an Austrian bank. But unlike most of the EU banking sector who are suffering under negative interest rates which makes it very hard to lend profitably. Erste Group generate the vast majority of their profits in Central and Eastern Europe. So, places like the Czech Republic, Romania, Slovakia and these economies are actually growing much, much faster than the EU.
Debt levels are actually, very, very low in these countries after the consumer has deleveraged after the financial crisis and because of that growth and because of that lack of debt there is very, very strong loan growth. Despite that Erste Group still trades at a discount to its book value because its associated with the EU. So, we think it's got this very nice combination of growth and very attractive valuation.
Wall: Because European banks continue to not be popular we've had even more bad news from Deutsche Bank this morning, this week. So how do you make sure that actually this bank is not tainted, is not associated.
Robbins: Yes, indeed. So, if you look at the Italian banks, they are still struggling under huge amounts of non-performing loans. Deutsche Bank and some others are still very, very under capitalised. Erste Group has cleaned up its balance sheet, it got into a lot of trouble with its Eastern European loans in 2011. But they have done the right thing and written much of those – most of those non-performing loans off and now they have got strong balance sheet and really well set to benefit from this loan demand.
Wall: What's the second stock today.
Robbins: So, the second stock we like at the moment is called Dometic (DOM). They are a Swedish manufacturer of what they term comfort critical equipment which means things like heating, air conditioning, sanitary and sinks and the like in recreational vehicles and big motor homes that you see in the U.S.
Very, very popular across continental Europe as well. They dominate, they are the market leader in this market and there is very strong growth of these motor homes, particularly because the children of the baby boomers are turning 50 about now and that’s the age where typically people invest in buying these motor homes. So, they are seeing very favourable demand growth because of the demographics.
Wall: And also people we were talking off air before about the sort of terrorism element of actually more people in the U.S. are preferring to take domestic holidays.
Robbins: So clearly when you see the attacks in Paris anything like that makes people scared about going overseas. So the idea of getting into motor home, driving it yourself, choosing where you go maybe steering clear of the bigger cities is actually becoming more popular.
Wall: What's the third stock today?
Robbins: And the third stock that we like at the moment is called Nexteer (01316). Now they are based in Hong Kong but really they are a global provider of the electronic steering systems in cars, SUVs, pickup trucks and the like. What we are seeing is very, very strong growth for their products. At the moment you can buy even basic low end cars, rentals, purchase that can actually reverse park themselves and increasingly that’s more sophisticated, more expensive kits that Nexteer provide to all these auto manufacturers.
And as we see the shift go away from people driving cars to autonomous driving than the complexity of these products will just go up and that’s really, really great news for the providers.
Wall: And how dependent are they on any key client? Because if we look at other tech companies other tech component companies such as chips, they are very much dependent on the relationship they perhaps have with Apple. Is that same with this sort of tech?
Robbins: It is slightly. They have historic relationships with GM and Ford and Chrysler in the U.S. but because they are based in Hong Kong they are increasingly penetrating the domestic names in China. And actually most western cars now have an element of electronic steering control already. Whereas a lot of the emerging market cars don't, so that's actually developing into new growth market for them.
Wall: Jake, thank you very much.
Robbins: Thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
