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T.Rowe Price: four areas to energise Europe in eventual normalisation

Tobias Mueller, portfolio manager of the T. Rowe Price Continental European Equity Strategy believes that there are encouraging signs ahead 

The Covid-19 pandemic is having dramatic consequences for Europe, with the major spike in cases posing a renewed threat to the recovery in 2021. However, unlike in past economic emergencies, European leaders are acting in a coordinated way and have committed to much-needed fiscal stimulus.

The pandemic is also serving as a catalyst for change, accelerating trends that emerged before the crisis, particularly the shift from the off to the online world and the further heightening of awareness around sustainability and green issues.

The development of effective coronavirus vaccines offers the hope of a recovery from the deep recession, beginning later this year. This recovery will likely depend on the path of the disease and the efficacy and distribution of the vaccines. Meanwhile, the level of continuing policy support, the evolution of corporate and consumer confidence and the degree of disruption caused by newly agreed post-Brexit trading arrangements will determine the longer-term trajectory of activity.

Nevertheless, with vaccines in the early phase of being rolled out across Europe, there are encouraging signs for a normalisation at some point – despite the still elevated current case outlook.

The return of travel – Amadeus

All companies tied to travel have understandably been hit hard over the course of the past year, as leisure and business travel fell dramatically. Amadeus, the leading ticketing distribution and technology supplier to the global travel industry, got ahead of the curve and refinanced earlier than most companies in 2020. Our research team believes the Madrid-headquartered Amadeus has the best technology and the strongest management team in its industry, while its competitive position has been markedly strengthened in the pandemic.

Evolving consumer trends – Zalando

The Covid crisis has dramatically accelerated the transition from offline to online in many parts of the economy, not least in fashion retail. Zalando, the Berlin-based e-commerce company that serves customers in 17 European markets, initially fell by 40% in the early part of 2020. We were able to take advantage of this opportunity as the market has increasingly appreciated the strength of its offering. However, we believe many investors still do not appreciate the remaining growth and profitability potential of the business, and we expect this to become clearer as we move through the year.

Continued sustainability drive – Rockwool International

Further regulations, combined with a number of other forces, are expected to continue powering the ‘ESG green wave’ in Europe. The election of a new environmentally friendly administration and higher climate-related spending in the US will also provide a further global tailwind. One likely beneficiary of additional sustainability endeavours is Copenhagen-based group Rockwool, one of the world’s largest suppliers of building insulation materials. We believe it is well placed to contribute to the reduction in carbon emissions through the energy efficient retrofitting of buildings.

Renewed capex spending – Siemens

The pandemic understandably forced numerous companies to slash expenditure and developments plans, as the European and global economy hit the brakes sharply. However, as economies continue to improve over the course of the year, corporates will need to revisit these actions in order to boost competitiveness and productivity. Siemens, the multinational conglomerate headquartered in Munich, has widespread exposure to many industries where this capex dynamic is expected to occur. We believe it is particularly well placed to enable its customer base to digitise production plants, while introducing additional software elements to processes.

 

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