A first look at French stocks – part 1 (including my Top 10 French small caps)
So far, I have been reviewing 4 French stocks in more detail:
From those four stocks, only Tonnelerie made it into the portfolio as a “Hidden Champion”.
France, as the second largest EUR economy has a lot of listed companies.
Bloomberg shows 847 listed companies based in France, a little less than Germany with 1110 companies, but more than Italy (304), Spain (201) and Portugal (67) combined !!!
Total market Cap for French companies is 1.09 bn (European “billion” or Amercian Trillion), slightly higher than the 1.02 bn/tn currently shown for Germany. Not surprisingly, France has more “big” companies with market caps above 5 bn EUR (45) vs Germany (35).
If we look at what I would call the “Small cap sweet spot”, 25-200 mn EUR market cap, we get 242 French companies against 498 companies in Germany.
General observations about French stocks:
I am definitely not an expert in French stocks and the French investment scene, but I would summarize my experiences up to now as follows:
– French companies, especially small caps are usually less leveraged and run more conservatively than their Italien or Spanish peers
– there is hardly any blogging or internet scene for French stocks. I know only of boursorama.com and the quality of posts there is usually quite low
– liquidity for French small caps is sometimes extremely limited. I guess this has to do with a preferential treatment of 5%+ psoitions under French tax rules. So many small caps have a large majority owner and several long term 5% stakes. Some stocks trade only twice a day at very small amounts.
– “shareholder value” seems to be still a kind of “dirty word”. One usually doesn’t see a lot of share buy backs etc. French companies either reinvest or keep a lot of cash on the balance sheet. M&A activity (take overs ect.) is also relatively limited. Don’t expect super efficient use of capital either.
– many of the smaller companies only report in French, which (thanks to Google translate ) is not a big problem anymore but might turn off some potential Anglo Saxon investors. Sometimes it is hard to find news, even on company web pages.
– disclosure in French reports is often relatively limited
So I would say that especially the smaller French stocks look really “neglected”, both by international and local investors.
For instance if I search for stocks with P/B less than 1 and a “single digit” P/E, I find 131 French companies against only 101 German companies. If I include a required minimum Dividend yield of 1.75%, I only get 32 German companies, but 84 French companies. So based on very simple metrics, there seems to be a bigger selection of “cheap” French companies than German companies.
Also when we look at the indices, France looks comparatively cheaper than Germany. Current P/E for the CAC 40 is 10.1 with a dividend yield of 5.3% against a P/E of 13.1 and dividend yield of 3.7% for the German DAX.
Interestingly, French small cap indeces are relatively expensive. The CAC Mid 600 Index for example tardes at an 12x forward P/E which is almost the same as the German MDAX.
However, in order not to make it too exciting, I will reveal my current “TOP 10 watchlist” of potentially interestign French stocks which there are:
1. Poujoulat (FR0000066441)
Chimney manufacturer, consistent profit growth, single digit P/E
2. Installux (FR0000066441)
Specialist for aluminium products, very profitable. Extremely cheap on an EV basis because of large cash position
3. Gevelot (FR0000033888)
Ridiculously cheap auto parts company. Very good post at Oddball
4. Samse SA (FR0000060071)
Cheap regional DIY chain
5. Piscines Desjoyaux (FR0000061608)
Swimming pool manufacturer, cheap, Royce has built up a 7.6% position in 2011
6. Trigano (FR0005691656)
Recreational vehicles, caravans
7. Groupe Guillin (FR0000051831)
8. Thermador (FR0000061111)
Plumbing supply wholesale
9. Precia SA (FR0000060832)
10. GEA SA (FR0000053035)
Highwy toll collection equipement
All those companies are plain vanilla “old economy stocks” who score incredibly well on my “boring but sexy” screen which combines ROE, volatility of ROE, growth, and solidity of balance sheets relative to price over 10 years..
Other interesting small caps which I haven’t researched deeply but might be interesting are:
Tessi (good post at valueinvesting france)
Chargeurs (another Seth Klarmann / Baupost position)
I will try to write a post for each of the “Top 10” companies in the coming weeks. However I would really appreciate if readers who have other interesting French stocks on their radar to shoot me a comment etc. or if you have researched companies on the list.
It would also be great to know if there are other interesting blogs and resources for French small caps like valueinvestingfrance.
For the portfolio I am actually thinking of taking a “basket” approach as it would take ages to build up a position in any of those stocks. Sow this would mean for instance 5x 1% positions as a “French basket”.
DISCLAIMER: The author privately owns already some of the discussed shares