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What European Stock Markets Look Attractive?

Nov 30, 2018

 

  • Today, we take a look at regional indices of major European countries to identify opportunities to invest in stocks on a macro-level.  
     
  • On both a forward and trailing basis, Italian stocks and Russian stocks maintain the lowest P/E multiples and are the cheapest among major European regional indices.
     
    • Historically, Russian stock multiples have lagged those of other major European regional indices, although they maintain the highest trailing ROE among its European peers. 
       
    • It is no surprise to see that Italian stocks are trading at extremely cheap multiples relative to their European peers. Controversy has surrounded Italy of late as their deficit levels have breached standards set forth by the European Union. A resolution to Italy’s deficit dilemma could spark a rally in Italian stocks, however, it would likely peter out as Italian stocks maintain the weakest trailing ROE among major European regional indices.  
       
  • UK stocks may warrant an investment consideration. Although UK stocks are the most expensive among major European regional indices on a trailing P/E basis, UK stocks maintain a fairly cheap forward P/E of 11.7x. Analysts expect UK stocks to grow a whopping 36.60% in the next fiscal year while they maintain the second-largest trailing ROE in comparison to its European peers. Brexit concerns, however, make UK stocks a largely unpredictable investment.

Major European Indices P/E Multiples, EPS Growth, and FCF Yields

Source: Bloomberg
Country and Index Fwd 12M P/E Ratio Trailing 12M P/E Ratio T12M EBIT/EV T12M FCF Yield FWD 12M EPS Growth (%) 3 Year Fwd EPS CAGR
Europe - Euro Stoxx 600 12.7x 16.0x 7.22% 3.98% 26.10% 11.09%
France - CAC 40 Index 12.3x 15.4x 7.57% 1.00% 25.23% 10.89%
Germany - DAX Index 11.5x 12.4x 9.21% 3.63% 8.30% 6.16%
Italy - FTSE Borsa Italiana  9.4x 10.9x 9.60% -3.88% 16.76% 8.65%
Spain IBEX 35 Index 11.3x 13.1x 8.39% 15.50% 15.82% 7.87%
UK - FTSE 100 Index 11.7x 16.0x 7.22% 5.46% 36.60% 13.56%
Poland - WIG20 Index 10.9x 12.7x 6.41% 1.87% 16.63% 8.94%
Russia - MOEX Russia Index 5.3x 6.0x 16.90% 10.79% 12.10% 5.36%

Major European Indices ROE Dupont Breakdown

Source: Bloomberg
Country and Index T12M ROE T12M Operating Margin T12M Net Profit Margin T12M Sales / Assets Assets / Equity
Europe - Euro Stoxx 600 12.22% 10.91% 8.22% 17.77% 7.7x
France - CAC 40 Index 10.56% 9.92% 7.30% 17.65% 7.6x
Germany - DAX Index 12.48% 9.80% 6.85% 25.46% 6.6x
Italy - FTSE Borsa Italiana  9.42% 11.19% 5.79% 15.35% 9.6x
Spain IBEX 35 Index 10.57% 14.85% 9.13% 11.46% 8.9x
UK - FTSE 100 Index 14.37% 9.98% 9.05% 18.10% 7.9x
Poland - WIG20 Index 9.75% 10.59% 6.63% 31.34% 4.3x
Russia - MOEX Russia Index 14.97% 18.17% 12.88% 36.61% 3.0x