There remains a high degree of scepticism priced into European equities, creating a backdrop where a broad range of companies have the potential to positively surprise. Europe’s strong research ecosystem, leading universities and deep talent pool continue to support innovation across sectors such as technology, defence and infrastructure, as well as more specialised niche areas where many companies have built global leadership positions.
Within this broad opportunity set, we believe the most compelling opportunities lie further down the market-cap spectrum. European smaller companies have seen relatively limited investor attention in recent years, despite undergoing a meaningful transformation. The combined impact of the Ukraine war and the subsequent inflation shock has forced many businesses to become more operationally efficient, disciplined and resilient – a shift that we do not believe is fully reflected in current valuations.
More recently, the Iran conflict has added a further layer of pressure through higher energy and input costs. In this environment, the quality of management teams becomes increasingly important.
Across our portfolio, we continue to see smaller companies responding with agility – actively managing supply chains, exercising pricing power where appropriate, and using technology to drive efficiencies and protect margins.
Below, we highlight three examples that illustrate where we are finding opportunities today.
As the continent faces up to its need significantly to renew and strengthen its often creaking infrastructure, Netherlands-based Royal BAM Group, a construction and infrastructure company, is well placed to profit. The group could be a major beneficiary of greater government spending on infrastructure in the coming years and it has a significant backlog of orders coming through its pipeline. The market has begun to recognise the quality of the company in recent years, but we believe it has further to run as infrastructure spending continues to gather pace across Europe.
AcadeMedia is a Swedish company that has broadened its geographic footprint across the Nordics and into Germany, providing early-years education. It is largely disconnected from macroeconomic shocks such as the oil price or US tariffs and enjoys a dominant position in its sector. The business is highly cash-generative and demand for its service in the future should remain robust. The stock is trading on an attractive price/earnings ratio of 11, making it an interesting long-term opportunity.
- Einhell, based in the Bavarian countryside, is a developer and manufacturer of DIY and power tools. The business led the way in developing battery-operated tools and is globally competitive on a cost basis, even against Chinese competitors. Einhell is starting to expand its reach across Europe and further afield.
These stock stories were first published in MoneyWeek. Read the full article here.
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