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JPM’s Horne: best bank bets to tap Renzi’s assets sell-off

JPM’s Horne: best bank bets to tap Renzi’s assets sell-off

Italian banks will benefit from Matteo Renzi’s intention to sell private assets to help pay off the country’s debt and it is time to tap the potential winners.

That is according to the Citywire AA-rated Nicholas Horne, who co-manages the JPM Europe Equity fund with Citywire AA-rated Michael Barakos and Citywire A-rated Alexander Fitzalan-Howard.

The Italian Prime Minister has promised to sell public assets worth about 0.7% of GDP each year to help the country get out of debt. In Horne’s view, Mediobanca, which makes up 1.16% of the Luxembourg-domiciled fund, will be one of the beneficiaries from this move.

‘A lot of these assets are held in terms of large stakes in companies slated for privatisation. Mediobanca’s strong position in equity capital markets is going to be of benefit to them,’ Horne told Citywire Global.

‘The stock is trading at around 15% discount to the Italian banking industry. The balance sheet is in good shape, they have pretty good asset quality. If we do stay in a subdued low rate environment they are not going to be adversely affected.’

Financials are the biggest sector in the fund at 26.9%, while Horne and his team have devoted 4.5% of the fund to Italy, which is an overweight of 0.7 percentage points. The fund has a small holding in Intesa Sanpaolo and Horne also named this as a good investment.

‘They are probably the best bank in Italy. A high quality name. They have quite a high dividend yield and it looks like over the next 12 months they are going to pay out 4.7%.’

European recovery

Horne believes Europe is in recovery and prefers stocks benefitting from current macro trends and also operating with low exposure to China. He named budget airline carrier Ryanair as a good stock and holds 1.1% in the airline.

‘It benefits from a number of trends. Not only the recovery in Europe but also weak energy prices. Although they hedge a lot of their fuel costs they have to roll those hedges. As energy prices remain subdued, we expect their fuel costs to drop by about 20%,' Horne said.

Meanwhile, in automotives, Horne pointed to Daimler, which makes up 2.4% of the fund. He said, compared to rivals Volkswagen and BMW, it is less dependent on the Chinese market.

‘Daimler does have some China exposure but it also has a lot of US exposure. On their recent earnings report their recent comments, at least for their own business on what they were seeing in China, were still positive.’

‘The picture in Europe at a macro level is probably as good as it has been, at least since before the financial crisis. Whether you look at fiscal policy, monetary policy, credit conditions, and consumer behaviour a lot of that is very positive.’

The JPM Europe Equity fund returned 71.7% in euro terms over the three years to the end of July 2015. This compares to a rise of 63.8% by its Citywire-assigned benchmark, the FTSE World Europe TR, over the same period.

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