(BFM Bourse) – In a note, the British bank’s strategists identify several stocks on which market reactions may have been exaggerated, thus creating an interesting entry point.
It is an understatement to say that the dissolution of the National Assembly by Emmanuel Macron has damaged Parisian actions. Over the week ending Friday June 14, the CAC 40 lost 6.2%, its worst weekly decline since March 2020.
The strong political uncertainty emanating from this decision weighed down all CAC 40 stocks, even if certain sectors, such as banking, motorway concessionaires and the TF1/M6 media groups, suffered more than others.
Given the impossibility of predicting the results of future legislative elections, caution still seems appropriate. “A few weeks before the results of the second round (of the legislative elections, Editor’s note), on July 7, our equity strategists expect price movements to remain erratic, given the diversity of potential election results,” explains Barclays bank.
However, doesn’t the fall in Paris stocks offer opportunities for certain stocks?
Barclays asked itself the question and published a note on Tuesday assessing the “return-risk” couple on the securities. Its equity analysts have looked in detail at several sectors to identify specific stocks.
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BNP at banks
Among banks, the establishment favors BNP Paribas, with a price target of 80 euros (compared to a price of 60 euros at Thursday’s close). Barclays judges that the stock market correction inflicted on French banks is “excessive” given the “limited at this stage” risk on their earnings per share and their already depressed valuation before the dissolution. The bank on rue d’Antin has the advantage of being less exposed to France than Société Générale and Crédit Agricole SA, and is also more diversified, argues the British establishment.
Note that a week earlier, Jefferies had made a similar observation, judging that French banks presented opportunities. Jefferies has a buy advice on all three stocks, but with a preference for Crédit Agricole SA.
Edenred suffered excessive pressure
In the broad “leisure” sector, Barclays has retained the specialist in employee benefits (meal vouchers, gifts), fuel cards and inter-company payments, Edenred, which has lost 11% since the dissolution of the General Meeting (at closing on Thursday). The bank believes investors’ fears are linked to a report from the Court of Auditors in May which had “focused on ways to reduce the budget deficit, in particular by limiting benefits to tax-exempt employees”. In other words, the market fears that the new executive will tighten the screws on the tax advantages linked to meal vouchers.
Barclays considers these fears to be exaggerated. France represented 15% of Edenred’s revenues in 2023 and of this percentage, meal vouchers account for around 50%, according to it. The (unlikely) end of meal vouchers in France would reduce between 7% and 9% of earnings per share, the bank calculates. This while the system is very popular with employees. Reducing or eliminating it would thus be “very unpopular”, warns Barclays. The bank also appreciates Edenred’s robust structural growth coupled with an attractive valuation and judges that the first half results could put its stock back on track.
Veolia rather than Engie
In “utilities”, a term that can roughly be translated as “community services”, Barclays prefers Veolia to Engie. The energy group risks suffering from its exposure to France, which represents around 42% of its gross operating income compared to less than 12% for Veolia. This while energy prices, and therefore potential increased interventionism on the part of the next government, have been at the heart of recent political debates.
For Veolia, the establishment estimated that the fall of the stock amounted to “destroying two thirds of French operations”, which is too strong. Barclays thus sees a “clear opportunity” to transform the underperformance of Veolia shares into an entry point to position itself in the medium term. Furthermore, “recently, French political interest in water and waste bills has been very limited compared to electricity and gas, whose price increases and volatility in recent years have been much more important”, underlines the establishment.
On the construction/construction/motorway concessions/infrastructure managers side, the bank chose Vinci. Like its rival Eiffage, the group suffered from the threat of the renationalization of motorway concession companies, a measure which was on the program of the National Rally in 2022. Barclays nevertheless considers that current prices give almost a zero value to motorway concessions in the actions.
Another action that the bank particularly highlights: Sanofi. Barclays struggles to understand why the defensive nature of the value has been less expressed than other stocks possessing these same virtues (such as L’Oréal and Danone). The stock only modestly outperformed the CAC 40.
This while political uncertainty does not have obvious consequences for Sanofi. Barclays actually sees only one: the high volatility of the markets linked to these questions could complicate the plan to spin off its “consumer health” activity (with doliprane) on the stock market with an IPO which could occur at the end of this year. The establishment underlines that Sanofi could benefit from several catalysts in the second half of this year, such as regulatory approval in the United States for the treatment of “smoker’s bronchitis” for its blockbuster Dupixent, or even good results from phase 3 clinical trials for its molecule tolebrutinib in the treatment of multiple sclerosis.
Julien Marion – ©2024 BFM Bourse