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Unloved utilities should stay that way, says Euro equity star

Unloved utilities should stay that way, says Euro equity star

Citywire AA-rated manager David Robison is unmoved by the sudden interest in utilities stocks as he believes the sector still faces severe structural headwinds.

Robinson made the comments in the latest update for his Melchior Selected Trust European Opportunities fund.

While not in direct response, the statement comes shortly after leading names in his field, such as Henderson’s Citywire AAA-rated manager John Bennett and fund of funds favourite Nicolas Walewski championed opportunities in utilities and upped exposure.

The London-based manager said that despite seeing his performance suffer over the past month, he was not tempted by the ‘unloved’ sector.

‘The fund faced a headwind during the month from sector exposure,’ he said. ‘[We have] no exposure to utilities, which to my mind look unattractive on 15x earnings given earnings risk in the near term from falling power prices and structural risks over the medium term from renewables.’

Instead, Robinson has fixed his focus on industrials, which is the largest active overweight in his $40 million at present. He currently holds three times the benchmark allocation here.

Going big on Germany

Recent additions in his European equity fund were focused in Germany, Robinson said, which is his second largest country exposure at present.

This saw Robinson initiate new positions in the German broadcaster ProSieben and in Braas Monier, a producer of roof tiles and other building materials, which came to the market in June.

‘We believe that the market may have under-estimated the earnings upside at ProSieben from HD carriage fees. Moreover, there is little in the valuation for its attractive digital assets, which we expect to make up 30% of revenue in 2015.

‘On 15x earnings, ProSieben trades at a material discount to other media groups with meaningful digital exposure and also yields nearly 5%, a dividend which can continue to grow,’ he said.

Meanwhile, Robinson said Braas Monier was a compelling story given the restructuring the company has done since the economic downturn. This has seen them rationalise the number of plants and reduce its staff levels by 40%.

‘It will be highly operationally geared to any recovery in construction volumes in Europe, which are close to 20-year lows, especially if other countries follow the UK’s lead in stimulating new housebuilding,’ he said.

The Melchior Selected Trust European Opportunities fund returned 51.6% over the three years to the end of June 2014. Its Citywire benchmark, the MSCI Pan Euro TR EUR, rose 38% over the same period.

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