Holly Black: Welcome to the Morningstar series, “3 Stock Picks.” I’m Holly Black. With me in the studio is Cédric de Fonclare. He is the Manager of the Jupiter European Special Situations Fund. And you are going to tell us three stocks that you are particularly excited about in the portfolio today.
Cédric de Fonclare: Yes. I think I will try to avoid this high-quoted growth which are priced for perfection and we benefited from holding them in the past. But right now, I think where is the biggest opportunity for us will be among, for instance, Nokia (NOKIA), which is a telecom equipment manufacturer, one of the world-leading telecom equipment manufacturer. And clearly, if you believe that Big Data, autonomous driving, artificial intelligence is going to go ahead, then really the quality of the network and be able to manage all this data is key for these applications to work. And therefore, what you’re starting to see is, operators spending more money into the 5G technology which support this kind of technology change. And we’re going just through this inflection point with Nokia which is recording more and more sign-off in terms of commercial deals and that needs to fit through their P&L, but that’s really become more and more obvious now. So, that’s the name, which is cheap, that’s the name which is trading at significant discount against another of its competitor which is Ericsson. And by the way, it’s also a name which benefit today from some extent the trade tension between U.S. and China. As you see, the Chinese operator was stopped being able to invest in U.S. which is a big market and other places in the world.
Black: Fantastic. So, what’s the second stock in the portfolio that you really like?
Fonclare: Second one I would like to talk about is Applus (APPS) which is Spanish-quoted company. And what they do is testing and certification. That’s pretty important now when you want to control the supply chain which is getting more and more complex. When you’re sourcing goods, will they comply with local regulations, et cetera. So, you can really see the value-add in what they do. And regulation in that example, is a beneficiary when there is more CO2 emission targets becoming laws, et cetera, they will be the one which will be testing cars, testing equipment to make sure that we comply with those rules. So, you can see that business in the current macroeconomic environment doing reasonably well. And again, they’ve got a strong balance sheet. The growth of that business has been accelerating in recent quarters. And again, it trades at quite a significant discount to its best known competitors. And I think they will be able to catch up.
Black: Is that an area where it’s gaining market share? How does it fare compared to its rivals?
Fonclare: I think generally the big guys are getting the market share as obviously companies are looking for similar kind of services across different regions. So, there’s a gain between the big players and in all their sort of niches they tend to be number one or number two. So, that big one will gain most of that I guess, yes.
Black: Super. And what is stock number three?
Fonclare: Stock number three is a German-quoted company called Brenntag (BNR). It’s very important in what it does. It’s doing chemical distribution. So, really, when you need just-in-time delivery in the next or small quantity of chemical, it’s critical to your activity, you rely on them rather than the big players who – BSF and others are very much into delivering very vast quantity of chemicals. So, there’s really a raison d’etre for these kinds of businesses. And scale really creates higher barriers to entry. This is a company which underperformed in terms of organic growth and margin versus its competitors. But now, you’ve got a change of manager and we’re hoping that definitely, it’s not priced in, that you know they will be able to with time improve the growth prospects of that business and really close the gap with closer competition. And with that will come, we think, very significant value creation.
Black: Well, thank you so much for coming in.
Fonclare: Thank you.
Black: And thanks for joining us.
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