(News Bulletin 247) – The Sino-British bank recently highlighted its favorite ideas on the stock market to cope with a lackluster context on the European market. Of the 27 stocks from the Old Continent that she recommends buying, five are French, including Biomérieux and Alstom.
The horizon for European equities is still very cloudy. At least this is the observation made by HSBC last week.
“The earnings per share growth outlook for Europe is comparatively weak and the ratio of upward revisions to downward revisions remains negative but is moderating. Companies paint a mixed picture of the outlook,” pointed out in a report from the Sino-British bank.
In this rather dull context, what actions should we prioritize? HSBC has chosen to highlight its “best ideas” including 27 stocks that the bank recommends buying. In other words, these securities constitute, in a way, the preferred values of the establishment in Europe.
The full list is at the bottom of this article. Regarding the Parisian market, HSBC has selected five stocks in quite diverse sectors.
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Crédit Agricole SA well positioned in the context of falling rates
On the banking side, the establishment has set its sights on Crédit Agricole SA. We had already devoted a complete article to HSBC’s argument.
To summarize, the establishment considers that the listed vehicle of the Crédit Agricole group has the appropriate structure to navigate in an environment of rate cuts. This while the American Federal Reserve and the European Central Bank have begun their cycle of reducing key rates.
More specifically, HSBC believes that Crédit Agricole SA’s asset gatherings activities will be more highly valued by the market. With the rate cuts, investors’ attention should be redirected towards commission-based income (such as Crédit Agricole SA’s asset management, therefore) to the detriment of those based on interest rates.
On the health side, two stocks are favored by the bank. First of all, Biomérieux, the specialist in in vitro diagnostics. HSBC believes that the group’s installed base of instruments among its clients provides a significant competitive advantage to the group.
To enable medical analyses, these instruments are associated with reagents sold by the company, which represent 80% of its turnover. This provides the company with a recurring revenue base, with regular sales of these reagents. And creates a barrier to entry. “The installed base of in vitro diagnostic equipment, or IVD, combined with testing reagents, creates a razor-sharp business model worthy of the moat,” Morningstar recently explained.
Towards a rebound from Sartorius Stedim?
Still in health, HSBC selected Sartorius Stedim Biotech, former star stock of the pandemic. The specialist in key technologies for manufacturing vaccines and drugs has been a recurring source of disappointments in recent quarters. This was again the case in July, when the company lowered its targets for 2024, citing customers’ destocking and their reluctance to invest.
“While market disappointment over several false hopes (…) rightly raises questions about the shape of the recovery, we believe the company is well placed to exploit future growth drivers as the destocking effects are diminishing and the financing of biotechnology groups (the group’s clients, editor’s note) is being re-established”, HSBC develops. In addition, the company’s structural growth prospects “in a low interest rate environment could attract higher multiples”, adds the bank.
On the industrial side, HSBC selected the railway equipment manufacturer Alstom, which recently straightened out its balance sheet, notably with a capital increase of 1 billion euros. The bank believes that investors’ attention will refocus on the execution of its strategy and the achievement of its objectives.
The company expects to generate an adjusted operating margin of between 8% and 10% for its financial year ending in 2025-2026, after 5.7% for its last financial year (and 6.5% forecast for the financial year in progress). The company will be able to count on the progressive execution of its order book, with new contracts having better margins than older ones.
“In addition, we believe that the business mix (the distribution of sales towards more profitable products, Editor’s note) should support the group with good prospects for growth and profitability in signaling and services, and that services in particular remain an essential pillar for the company in the future”, anticipates the bank.
The last French group in HSBC’s selection is the outsourced customer relations specialist Teleperformance, which has suffered for a year and a half from fears of an upheaval in its economic model due to the rise of generative artificial intelligence (AI).
While it will be difficult for the company to completely allay these fears, Teleperformance’s valuation, at around 7 times expected profits for 2025, appears too low in HSBC’s eyes. Particularly in view of growth expected by the bank between 4% to 5% per year.
The establishment is therefore counting on a “rerating”, that is to say a revaluation of the company’s stock market multiples. The bank judges, firstly, that management’s 2024 objectives appear “prudent”, which could lead the company to raise its outlook.
Then, market fears linked to the development of AI are exaggerated, believes HSBC, whereas the group should on the contrary strengthen its offer and its competitiveness thanks to AI. Final point: Teleperformance’s cash generation remains high, which should allow the company to take care of shareholder returns, get out of debt, or even consider external growth operations, the bank lists.
The 27 European companies recommended by HSBC
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