Europe Stock Writeups

C&C Group manufactures Magners, Ireland's leading cider brand, with approximately 80% market share, as well as Tullamore Dew Irish whiskey. With strong brands and marketing capabilities, the company re-created cider as a fashionable drink for people in their 20s and 30s. On the back of its success in Ireland and upon entering the UK market, C&C geared up for massive volume expansion with the UK launch of Magners. Unfortunately this coincided with an unexpectedly wet British summer and an underestimated competitive response from Scottish & Newcastle to C&C's entry into the UK market. The stock price fell by over 40%, leaving it with an expected 5% dividend yield and 10% free cash flow yield. Volumes have now stabilised and cost cuts are expected to improve earnings. As a potential bonus, the company may be an attractive acquisition to one of the major brewers with strong distribution channels, such as SAB Miller or InBev.

Sedol	Type	Price	Date
B011Y09	Buy	EUR 3.98	15/01/2008

After reporting lacklustre numbers, our target price on Carrere had been revised down. It was sold on hitting it.

Carrere Group is the leading independent French producer & distributor of animated series and films for TV. The company owns the rights to its animation characters and sells related merchandise. Carrere also owns the rights to certain other existing characters, such as Snoopy. The company's free cash flow is highly attractive at 34%.

Sedol	Type	Price	Date
7136072	Sell	EUR 22.634	20/04/2007
7136072	Buy	EUR 18.65	19/09/2005
7136072	Buy	EUR 18.72	16/09/2005
7136072	Buy	EUR 18.82	14/06/2005
7136072	Buy	EUR 18.189	10/06/2005

Christian Dior is a luxury goods 'supermarket' - aside from clothing and perfume, it also owns Hennessy, Glenmorangie and 35% of the world Champagne market. 25% of sales are currently in Asia and a further 10% of sales are to Asian tourists, making the company very sensitive to any pick-up in Asian consumption - in 2006 Asia was its largest growth market. The company has a history of making sound acquisitions that fit its business model and management is very strong. It consistently generates a large free cash flow, all contributing to making it a buy.

Sedol	Type	Price	Date
4061393	Buy	EUR 92.914	20/03/2007

Whilst Commerzbank is in itself a high quality operation, the turn in the credit cycle has increased the risks to earnings for all banks and caused us to revisit our models across the sector. Factoring in the likely increased cost of funding and a higher cost of risk, as well as the German government's insistence that the quoted banks should contribute to the bail-out of IKB, this has reduced the stock's value dramatically and we therefore sold our holdings.

Commerzbank was re-purchased after the shares fell, and the company posted a very solid set of results for the first quarter of 2006. Commerzbank's purchase of Eurohypo is yielding concrete synergies, and demonstrates good balance sheet management. The purchase was funded largely from the balance sheet, with shareholders also being diluted by 14% through new shares being issued, in exchange for a 47% boost to pre-tax profit and a significant hike in the company's return on equity. The latest results also show that the earnings quality remains high, driven by excellent relationships with Germany's Mittelstand companies.

Sedol	Type	Price	Date
4325538	Sell	EUR 27.372	14/09/2007
4325538	Buy	EUR 28.065	13/10/2006
4325538	Buy	EUR 28.692	18/05/2006
4325538	Buy	EUR 31.095	16/05/2006
4325538	Buy	EUR 21.457	16/09/2005
4325538	Buy	EUR 17.75	08/07/2005
4325538	Buy	EUR 17.84	06/06/2005

As the US economy has worsened and the impact of the credit crunch spread to consumers in parts of Europe (particularly the UK), we revisited our assumptions for Continental, which is now 75% exposed to automotive manufacturing (rather than aftermarket) after the purchase of VDO from Siemens last year. Our expectation is that automotive production will fall sharply, causing revenues to fall short of market expectations, while the group also faces higher financial charges and lower earnings. This reduced fair value and we therefore sold the stock once our revised price target had been reached.

Continental is more than a tyre manufacturer; the largest contribution to earnings comes from automotive technology, such as ABS, traction control systems and the like. The share price came off on the back of disappointing earnings in the third quarter of 2005. This was caused by a combination of factors that look likely to be reversed, including high raw material prices, and the fact that Continental's management walked away from a putative bid by a private equity company. Management continues to cut costs, revenue growth looks set to continue (albeit at a lower rate than in recent years), and raw material prices should fall in the second half of 2007. These factors combine to produce a target price with 28% upside.

Sedol	Type	Price	Date
4598589	Sell	EUR 76.707	28/04/2008
4598589	Buy	EUR 90.883	05/03/2007
4598589	Buy	EUR 88.455	11/01/2007