Saxo Bank (Saxo Bank)
Markets  |  January 29, 2013 11:18:46

TOP10 shares from PIIGS with the greatest potential

We looked at the best stocks of European pigs - PIIGS, ie Portugal, Italy, Ireland, Greece and Spain. For our clients we are from these countries analyzed stocks that are included in the index Stoxx 600 and omitted the financial sector. For financial companies from these countries, we believe that the numbers of the accounts does not necessarily reflect the real and potential risks.We start from numbers that are available on the Bloomberg Terminal.

Shares of PIIGS countries with the greatest potential is dominated by companies from the utilities sector (utilities)

Our approach is based on the ratio of financial indicators ROIC / WACC for EV / IC, where the linear relationship roughly one-to-one difference between profit (ROIC / WACC) and value difference (enterprise value to invested capital). Based on this assumption, I conducted an analysis of 41 shares of non-PIIGS countries from the index Stoxx 600th The table below shows the stocks with the greatest potential.

  Fiat (BIT: F) has the greatest potential as an enterprise value of half the capital invested. Should be catalyst for Fiat stabilization and regrowth of the euro area economy. Why are automakers like Fiat interesting? There is an implicit leverage in the income statement, which, if things go the right direction, increase profit.

Another remarkable fact is that in the top 10 we find four companies from the utilities sector. Not so much their profitability, since the average cover capital costs only 20 percent. Herding up would be low valuation compared in restoration costs, partly due to the fact that they expected long-term low profitability, which is indeed not well reflected in the prices of its shares (see chart of public sector services in the Euro Stoxx since 2011 ). If you believe that in 2013 will begin in Europe to improve economic climate, then prices should these utilities grow to more reflect their true profitability.

The first ten shares of PIIGS countries dominate Spanish titles

If you are not very interested in stocks that should go back to the growth (which the above stocks with the greatest potential), then you might like to take more of the following table with 10 top-grade securities. You will find there are 10 shares of PIIGS countries with the most profitable spread without taking into account their valuation. Note that the table is dominated by Spanish titles as Zardoya Otis, Tecnicas Reunidas, Inditex, Viscofan, Amadeus IT Holding and Telefonica.

If these shares maintain a stable profitable spread, should continue to grow and perform in 2013 a nice performance.

Peter Garnry, Equity Strategist, Saxo Bank

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