< The 2016 All-Europe Research Team
Christian Kern
& team
J.P. Morgan Cazenove
First-Place Appearances: 6
Total Appearances: 11
Team Debut: 2005
J.P. Morgan Cazenove bounds from runner-up to first place. The last time the firm’s U.K. equity research squad led the pack was in 2012, when Paul Huxford directed coverage. With his January 2015 retirement, Christian Kern assumed responsibility for this team, in addition to becoming head of European equity research. Fifty of the firm’s analysts in London are dedicated to tracking this space, and investors say their sector coverage is especially outstanding. For example, one fund manager in Boston praises “their excellent, in-depth work on U.K. banks, including complex regulatory issues,” and notes that “they’ve covered banks for a long time and have excellent contacts.” Another admirer insists that “for detailed knowledge of small- and midsize U.K. equities, their annual directory and weekly reports are the first port of call.” Current favorites among the 240 companies in the group’s U.K. portfolio include Berkshire-based Vodafone Group. Kern and his colleagues recommend that clients overweight the telecommunications behemoth, on the view that the investment community will refocus on revenue performance, which is gradually improving thanks to the unwinding of mobile termination-rate cuts and cross-selling fixed-line services. Management’s £20 billion ($32 billion) Project Spring program to build out the largest fourth-generation network in Europe has had a “distorting effect” on results, Kern reasons, since it commenced in 2013. But the scheme is finally paying off; Vodafone returned to organic growth in service revenue in the fiscal second quarter, which ended in September. When such attractive features as the provider’s increasing exposure to cable and emerging markets are factored in, he adds, its low valuation is “unwarranted.” Accordingly, the analysts peg Vodafone’s stock at 265p, which implies a 22.5 percent premium over its trading level in mid-January. They project even more potential upside for the London-listed shares of Shire, an Irish biopharmaceuticals developer. The drugmaker has two emerging ophthalmic treatments that will be key drivers for future earnings, the squad forecasts. The first, Lifitegrast, is a potential medication for dry eye disease in adults; the U.S. Food and Drug Administration is expected to approve its use by the third quarter. The second, Premaplex to treat retinopathy of prematurity — a complication of diabetes — is on track for a U.S. regulatory filing this year. In the meantime, they advise, Shire continues to benefit from its collaborations with peers and the steady performance in its core business. The stock closed at 4,179p in mid-January, just above seven times earnings — and fully 46 percent below the firm’s target price of 6,100p. Kern signed on with J.P. Morgan Cazenove in January 2009 and oversaw Middle East & North Africa equity research in Dubai before taking on his current duties. For several years prior, he co-captained Lehman Brothers’ No. 1 telecoms team. Kern earned an MBA in finance at Columbia Business School in New York and holds a master’s degree in engineering from Germany’s Technische Universität München.