Europe's recovery opportunities

urope remains on the slow road to recovery despite the recent negativity.

Martin Todd

Compounding the gloom amongst investors is the ratcheting up of event risk. Brexit is looming largest, driving down sterling and threatening sustained instability. However, the gloom is masking pockets of optimism. While some earnings have disappointed, there has been a raft of companies still managing to beat estimates.

We see beneficiaries of structural growth themes, and cheap domestic cyclicals able to cut costs to sustain profitability.

GSK: Pharmas face stiff pricing pressure and competition headwinds. However, following restructuring, the Novartis deal and shareholder pressure, GSK is seeing its first EPS upgrades in four years. Despite lower profits, it is bullish on future revenues and increased efficiencies – saving £3bn by end 2017. Doubledigit EPS growth is expected in 2016, with a 6% dividend yield.

Adidas: Following a period of struggle and restructuring, Adidas is stretching its legs. Optimism over new product development has been buoyed by betterthan-expected results across all regions. Sales have risen strongly – driven by double-digit growth in Western Europe, China and LatAm. The company upgraded earnings forecasts to 10%+ in top and bottom line growth. Merlin Entertainments: Merlin has delivered strong results following a summer of discontent after the Alton Towers accident. The outlook is optimistic with an increase in 2020 organic targets. Robust performance was helped by new openings and a growth in like-for-like sales.

ING: The Dutch bank declared pre-tax earnings 11% ahead of consensus and a stronger capital position – at 13.4% versus the 13% CET1 consensus. The company has a 6.7% dividend yield and targets a growing future dividend.