Best of the Buy Side - Europe: Winners

Best of the Buy Side - Europe: Winners


J.P. Morgan Fleming Asset Management

Beverages, Food Producers

Robin Asquith spent a decade on the sell side covering European food manufacturers for Deutsche Bank before joining J.P. Morgan Fleming Asset Management in 1996. There the 45-year-old analyst, also selected as part of Europe’s Best of the Buy Side in 2003, follows about 30 food and beverage stocks and manages the firm’s food and beverage portfolios for Europe, Africa and the Far East. (J.P. Morgan Fleming keeps $60 billion of its $140 billion in European assets in stocks.) “He knows his sector very well,” says one sell-sider, “and I think he calls them quite well.” Asquith’s best call for 2003 was U.K.-based consumer products company Reckitt Benckiser, maker of French’s mustard and Lysol disinfectants, among other brands. During the first quarter of last year, investors dumped the stock, concerned that growth would stall. They also worried about the effects of a sell-off by a holding company owned by the founding Benckiser clan, Reckitt Benckiser’s largest shareholder, whose stake declined from 23.7 percent to 15.7 percent of outstanding shares. Asquith reasoned that the sell-off had nothing to do with the company’s business, however, and he began to increase his stake in March, when the stock fell below £10 ($15.70). He bought more stock below £10 through the second quarter. The shares closed the year at £12, as annual revenues rose 7 percent, to £3.8 billion, and net income increased by 20 percent, to £489 million. With the company targeting low-double-digit income growth in 2004, the shares had climbed to £14 by mid-April. “He’s very conscientious and a good listener,” says an admirer of Asquith’s. “He asks sensible questions.”


Deutscher Investment Trust


Dirk Bartsch is a relentless hunter for new ideas and interesting insights to supplement what he describes as his own “fundamentals-based, bottom-up-driven” research. Sell-side counterparts see the 33-year-old researcher for Deutscher Investment Trust -- E47 billion ($56 billion) in assets -- in Frankfurt as quite demanding. He wants more than plain-vanilla updates on the 27 banking stocks he tracks in Austria, Belgium, France, Germany, Italy, the Netherlands, Spain and Switzerland. This intensive information gathering helped Bartsch make several outstanding calls last year and wins him strong praise from the sell side -- and his first year among Europe’s Best of the Buy Side. “I respect him a lot,” says one brokerage researcher simply.

Bartsch, whose firm is the German mutual fund arm of Allianz Dresdner Asset Management, meets with executives from the companies he covers about four times a year; he also likes to sit down with division heads, who, he notes, can be very helpful in understanding strategy, products and execution. “He’s well prepared, does good work, and he is one of the most experienced analysts in Germany,” says Jürgen Ackermann, head of investor relations at Commerzbank. After these meetings Bartsch will often go back to get more input from sell-side analysts.

The Frankfurt native may be imposing, but his system seems to work. He was among the first analysts to turn bullish on the beleaguered German banking sector in late 2002, based on attractive valuations. He was right: German banking shares jumped 55 percent last year, easily topping the MSCI Europe index’s 16.5 percent local-currency return. Among his top picks was Commerzbank, where he got his start as an equity analyst. After a bumpy takeoff the shares jumped from E7.85 to E15.47 by the end of 2003; in mid-April they were trading at E14.6.

While still enrolled at Hochschule für Bankwirtschaft in 1990, Bartsch worked part-time in Frankfurt at Commerzbank, where he later became a member of the foreign exchange trading department before moving over to equity research in 1995. He switched to DIT in 2000.


M&G Investment Management

Equity Strategy/Developed European Markets

David Fishwick did more than just ride out the bear market of 2000'02. From the boom year of 1999 through the downturn and then the rebound in 2003, Fishwick’s ten-member tactical asset allocation team at M&G Investment Management, Londonbased Prudential’s fund management arm (£111 billion [$197 billion] under management), registered five straight years of positive performance, Fishwick says. It was all in the timing: In late 1999 and early 2000, “Fishwick recognized the need to switch out of equities and into bonds,” says a sell-side admirer.

The 39-year-old, making his first appearance in Europe’s Best of the Buy Side, got it right again in 2002. For the first three quarters, he maintained underweight positions in U.S. and European equities; in the fourth quarter he went modestly overweight in stocks and underweight in bonds. “These calls were obviously contrarian,” the strategist notes. “They felt extremely uncomfortable at the time, as few people agreed with us and some violently disagreed.” But, he adds, “our process focuses on valuation extremes and the fact that consensus opinion can swing dramatically. As such, we took some comfort from the lack of agreement with our views.” In 2003 the team recommended overweighting equities and currencies of “peripheral markets,” including Singapore, South Africa and South Korea. Through the end of the year, these markets rose by 34 percent, 40 percent and 33 percent in dollar terms, respectively, easily outperforming U.S. equities’ 26 percent gain; they tacked on a further 5 percent, 6 percent and 17 percent through mid-April, against the 2 percent advance of the U.S. market.

Fishwick, an amateur guitarist and serious cricket fan, joined Prudential as an economist in 1987 after graduating with an economics degree from London’s Brunel University. He spent six years in the insurer’s Sydney office before returning to London in 1999 as director of asset allocation and head of the strategy team. That same year Prudential acquired the former Municipal and General Securities Co., which it integrated in 2000 with institutional fund management unit Prudential Portfolio Managers to form today’s M&G.


Schroder Investment Management


Just 28, Cambridge University grad Julian Gould is regarded by many brokerage researchers as “the most knowledgeable analyst on the buy side in the European utilities sector,” in the words of one. Now in his sixth year at Schroder Investment Management in London, which manages £98 billion ($174 billion) globally, Gould is lauded for combining in-depth fundamental analysis with a first-rate understanding of broader themes. “He goes through an enormous amount of detail but doesn’t lose himself in it,” says another sell-side analyst. “He gets the bigger picture.”

Gould, who also ranked as one of Europe’s Best of the Buy Side last year, describes his “very fundamental” approach as tightly focused on the “absolute valuation of a stock.” In assessing 30 European companies, he places greatest emphasis on return on capital, quality of management and free-cash-flow generation. One example: U.K. gas supply company Centrica, which he first recommended early last year. The stock, then trading at about 150p, or about nine times earnings, offered an “excellent entry point,” he says. Centrica, Gould argued, has a top-notch management team and generates free cash flow. The company has used the cash wisely, raising its dividend sharply, replacing gas reserves and investing in customer relationship management systems and renewable-electricity generation. Shares rose by approximately 40 percent over the year through mid-April.

The analyst, who also oversees Schroder’s eight-person global utilities group, demonstrated his ability to look beyond fundamentals last year in his coverage of Spanish utilities. Although the local industry’s fundamentals were solid, Gould fretted about the potential impact of Spain’s 2004 elections on new, more utility-friendly regulations and saw better opportunities elsewhere. He decided to underweight the group. The shares rose 20 percent in the year through mid-April (hurt by the terrorist attack just before the election) but trailed the European sector’s 26 percent surge.


Alliance Capital Management


There is nothing like dodging Central London traffic on a bicycle to give an insurance analyst an appreciation of risk. Alliance Capital Management’s Jenny Norris, 41, is as well known for showing up at the front door for insurance company presentations on her Dawes Super Galaxy bike as she is for her prescient analysis of insurers. As one sell-side researcher who has worked with Norris for years says: “We all know analysts who call up every day all panicky, following a new development. Jenny consistently avoids the herd mentality and tends to be thinking two or three steps ahead.” Another brokerage analyst praises the University of Oxford grad, who joined $489 billion-in-assets Alliance Capital in 1992 after picking up an MBA from the London Business School, for her desire to go beyond sit-downs with top management at companies and “take time to meet with divisional managers and industry regulators as well.”

Norris’s independence helps make her a top-notch stock picker, say her sell-side counterparts. For instance, she has been bullish on Swiss Reinsurance Group since it dipped in March of last year on the eve of the Iraq War, even though most analysts believed the reinsurance group’s postSeptember 11 surge had run its course. She was vindicated a year later when Swiss Re reported a 2003 profit of Sf1.7 billion ($1.37 billion), surpassing the consensus estimate of Sf1.54 billion. The shares rose from Sf50 in March 2003 to Sf88 by mid-April of this year.

The former physics major, who joins Europe’s Best of the Buy Side for the first time this year, says that she is equally confident that U.K. life insurer Legal & General Group, which she began recommending in January, will do well this year. “Tighter regulation in the U.K. will have a survival-of-the-fittest effect on the insurers,” she says. “And L&G is one of the fittest.” In mid-April L&G was trading at £95, off its early 2004 high of £109 and down from £100 at the start of the year.


Newton Investment Management


The media universe is in a constant state of flux, so why should Russell Pointon’s world be any different? “I am uncertain how many stocks I cover,” admits the global media analyst for London-based Newton Investment Management, a Mellon Financial Corp. subsidiary with £21.1 billion ($38.7 billion) in assets under management. “The list tends to change depending on what is in focus and of interest.”

But there’s nothing fuzzy about the insights that earn the 37-year-old Pointon his debut among Europe’s Best of the Buy Side. At the start of last year, the analyst, who also follows the retailing sector, recommended two British media powerhouses in which he perceived “recovery potential": news giant Reuters Group, which was in the midst of a restructuring, and television network Granada, which had agreed to merge with rival Carlton. Pointon didn’t waver when Reuters’s shares slid from 163p at the time of his call to 89p two months later. Granada, now known as ITV (the deal closed in February 2004), also slipped, from 76p to below 45p in March 2003. But by year-end Reuters had rallied to 231p, ITV to 120p. Their full-year gains -- 41 percent for Reuters, 57 percent for ITV -- far outstripped the 13 percent gain of the MSCI European media index. As of mid-April Reuters was up to 405p, ITV to 129p.

In retail, Pointon upgraded U.K. electronics dealer Dixons Group last March at 79p after consumer groups had accused the chain and other retailers of anticompetitive practices related to extended warranties. The bad press was fleeting; in December the Competition Commission, which had been investigating the extended warranties marketplace, reached conclusions favorable to Dixons, and the stock recovered 73 percent, ending the year at nearly 138p. (The MSCI Europe retailing group within the discretionary sector rose 34 percent in local currency over the same period.) In mid-April Dixons’ shares were at 152p.

“A lot of my time is spent looking at fair valuations and consensus forecasts, trying to identify where they might be wrong,” explains Pointon, a former CPA who joined Newton in 1993, five years before U.S.-based Mellon bought a controlling stake. Sell-siders appreciate his accessibility. “He calls me as much as I call him,” says one. “It’s a good two-way relationship.”


Morley Fund Management

Health Care, Pharmaceuticals

Before he joined Morley Fund Management in December 2000, Richard Purkiss had spent the bulk of his career in medical studies -- he spent several years on Alzheimer’s, Parkinson’s and Huntington’s diseases, for example -- and in temporary academic jobs. An M.D. and a Ph.D. in neuroscience from University College London, Purkiss says he “got disillusioned” with both academic and clinical medicine and decided to “get into finance.” He appears to have found the perfect full-time outlet for his talents at London-based Morley, now a unit of Aviva, which manages £112 billion ($207 billion), of which £29 billion is invested in European equities. “I’m principally comfortable with diseases -- how certain products will perform with specific diseases,” the 39-year-old analyst explains.

Purkiss, marking his first year on Europe’s Best of the Buy Side, tracks 20 companies -- 12 pharmaceuticals suppliers and eight biotechnology developers -- with a wide range of market capitalizations. Among his best calls: an August 2002 overweighting of AstraZeneca, which Purkiss considered undervalued at 1,903p. The British pharma giant had a “maturing pipeline” of “well-differentiated products,” Purkiss recalls, including lung-cancer drug Iressa, which debuted in the U.S. in 2003 and racked up sales of $228 million globally by year-end, a 240 percent increase from the previous year. (The drug hasn’t yet been approved in Europe.) AstraZeneca shares jumped from 2,117p by the start of 2003 to nearly 2,625p at year-end. Their 24 percent gain for the year was double that of the MSCI Europe pharmaceuticals and biotech index, but the stock’s rise slowed this year, to 2,676p in mid-April. On the small-stock end Purkiss recommended Denmark’s Genmab at 40 Danish kroner ($6.50) last June after seeing encouraging clinical data for its rheumatoid arthritis drug HuMax-IL15. Genmab’s stock catapulted to Dkr50 at year-end and nearly Dkr102 in mid-April, giving it a market cap equivalent to $346 million.

Purkiss, who earned an MBA from Imperial College London, is “knowledgeable yet open-minded,” observes one sell-side counterpart. “He’s always pleasant and polite, too, which probably helps him get more input.” Purkiss readily acknowledges his debt to sell-siders, especially those who have industry experience -- “the piece of the pie I find most difficult,” he says. “I tend to pick analysts by their unique strengths.”