Bellevue Sustainable Entrepreneur Europe (Lux)

European equities, as measured by the SXXR, fell 0.2% in the month (S&P 500 -3.3%, MXWO World -2.9%). After a strong first quarter, markets consolidated in April on the back of sticky US inflation and geopolitical tensions in the Middle East. Inflation in Europe is heading in the right direction, with the core component down to 2.7% (2.9% in March). The consensual expected ECB rate cuts by year end 2024 fell from 89 bps at the start of the month to 66 bps, still above the 28 bps in the US. Q1 results were overall reassuring, with 56% of companies beating EPS estimates in Europe, above the LT median. Encouragingly, PMIs in Europe confirmed their upward momentum. The Eurozone flash PMI was up for the 6th consecutive month, rising to 51.4 in April from 50.3 in March. In term of sector performance, basic resources (+9.8%), energy (+5.7%) and banks (+4.4%) performed best while automobiles and parts (-5.8%), retail (-5.2%) and technology (-4.9%) lagged the most.

Against this backdrop, the fund declined by 1.8% (EUR / B shares), underperforming its benchmark by 80 bps.

Main detractors in the month were Alten (-18.1%), Carl Zeiss (-14.4%) and Sopra Steria (-8.2%). Alten published Q1 organic growth of 0.8%, slowing down sequentially and below consensus expectations of 2% to 3%. The company specified its FY target at 3%, generating only minor EPS downgrades. At less than 8x 2024 EBIT, Alten's valuation is nearing trough levels, implying highly positive risk/reward. Carl Zeiss was weak on anticipation of its quarterly publication, as its FY guidance implies a material uplift in H2. We feel the concern is overdone as most of the destocking is now complete, comps will become easier in Q4 and price increases in MCS should be supportive. Sopra Steria Q1 organic growth of 0.3% was in line with expectations. The company maintained its FY forecasts of 2% to 4% but suggested that Q2 is likely to remain slow, implying a back end loaded acceleration underpinned notably by the ramp up of a large contract in the UK and better trends in the aero sector. By then, the disposal of its SBS division should be acted, an operation that will be EPS enhancing and positive for the company risk profile.

Top 3 contributors in the month were Caixabank (+10.2%), Bankinter (+9.4%) and Prysmian (+9.4%). Caixabank posted solid results, including a 3% NII beat, in-line costs and better loan loss provisions. Based on better volumes, a slowing pace of migration into interest-bearing deposits and a better rate outlook, management increased the NII guidance. In the same vein, Bankinter posted net profit above expectations on better-than-expected provisions, fees, trading gains and costs. Prysmian announced the acquisition of the US cable manufacturer Encore Wire for an EV of EUR 3.9 bn, an operation that will strengthen its distribution in the US and its presence in low voltage, a segment that has been somewhat overlooked by the financial markets so far. The deal should be 20% accretive and 30% post synergies.

Bond markets were volatile again in April and yields kept increasing. Equity markets consolidated somewhat. On a positive note, European equities were down less and small and mid caps were quite resilient. Despite the US Fed narrative losing momentum, the broader global recovery is intact and World PMIs are expected to remain above 50. Also, the destocking and inventory correction seems to have found an end. GDP growth picked up a little both in the EU and China and activity levels improve. From a PMI momentum point of view, Europe vs US will turn to the positive and European companies should benefit from more positive relative top line and EPS delivery. Our stock picking in industrial names has been inspired by the structural growth theme of Global Infrastructure Capex needs. We now expect the positive cyclical momentum to further benefit this space.