Europe Stock Writeups

TF1. The French Government has announced refoms in the TV market, to bring the country into line with the rest of Europe. As one of the two private sector broadcasters (Vivendi's CANAL+ being the other), TF1 should benefit from: more advertising time being allowed, a reduction in the French content rules (much of which TF1 has to fund but is never aired as quality is often poor), and improved profitability of the free channels. Cost-cutting has also commenced by the new CEO; about time too. The balance sheet is fine, with a small possibility of corporate excitement.

Sedol	Type	Price	Date
5997118	Buy	EUR 18.212	14/11/2007

Thales was sold as the stock became fully valued. Its revenue stream remains defensive, but on the other hand the elimination of the discount to fair value will increase the danger of a share overhang from Dassault, which owns 5%. Other dangers include a forced merger with Safran, as the new French administration has made no bones about its desire to produce French national champions. Recent trading updates and guidance suggested that the stock was fully pricing in the new order flow.

Thales is France's leading defence systems company; the rationalisation of the company's assets over the years means that the majority of divisions are focused on systems rather than heavy manufacturing. The exception is the Naval activities which, under its new structure, look set to construct the UK's future aircraft carriers. A healthy order book, and continued focus on costs, gives over 20% upside, in our view, for the share price to reach fair value.

Sedol	Type	Price	Date
4162791	Sell	EUR 42.985	16/05/2007
4162791	Buy	EUR 40.416	20/03/2007

Two problems - management sales of shares in large numbers, even just before securing the all-important Cessna contract, and a pending decision by the prosecutor's office on various events two years ago. Throw in a credit cycle squeeze, and city-type boys may buy fewer toys, hence we exited.

A stake was bought in Thielert AG, which is the world's sole accredited manufacturer of aircraft piston engines that can run on diesel or kerosene, or a mixture thereof. Conventional piston engines run on AVGAS, which is facing environmental headwinds as it is leaded fuel. AVGAS availability is limted in many developing parts of the world, and in the West opposition to it is growing. Cessna and other leading aircraft manufacturers have just signed agreements allowing Thielert engines to be installed on new aircrafty, rather than as retor-fit kits. Thielert also supplies parts to manufacturers of Unmanned Aerial Vehicles (UAVs) for the US Department of Defence. Concerns over the company's high levels of working capital (brought on by contracts with long lead-times growing faster than revenue received) created an ideal buying opportunity in a company that is likely to dominate a fast-growing global market.

Sedol	Type	Price	Date
B0P7D39	Sell	EUR 19.155	09/08/2007
B0P7D39	Buy	EUR 20.80	16/11/2006
B0P7D39	Buy	EUR 18.013	09/11/2006

This German logistics and transport company (formerly Thiel Logistik) was in the midst of a major restructuring programme. The supply chain management segment of the business has struggled for a number of years and is still to earn a decent profit. Road haulage margins have been squeezed by high fuel costs and competition. Air & Sea freight, a major contributor to the turnaround in earnings, now looks increasingly vulnerable as world economic growth slows. Factoring this risk into forecasts dramatically reduced fair value and the stock was consequently sold.

Thiel Logistik (name changed to Logwin) is a leading German logistics company with especially strong market shares across the fashion, furniture and automaker industries. The business is coming to the end of a long restructuring process with head-count down, admin functions rationalised and processes cleaned up. The benefits of this should now start to show through.

Sedol	Type	Price	Date
5928776	Sell	EUR 1.103	25/09/2008
5928776	Buy	EUR 2.871	09/02/2007
5928776	Buy	EUR 2.936	11/01/2007

TPSA. Poland's dominant fixed line telephone operator, part owned by the government and France Telecom. Also involved in mobile. The scope for rationalisation is clear and the company has embarked on the same. A considerable upturn in the free cash flow yield is the inevitable consequence, whilst the unstable shareholding structure may mean it becomes a corporate takeover play. Moreover, the company undoubtedly benefits from the rapid growth in the Polish economy and personal consumption expenditure.

Sedol	Type	Price	Date
5552551	Buy	PLN 20.927	25/10/2006
5552551	Buy	PLN 20.909	11/07/2006
5552551	Buy	PLN 22.563	07/03/2006