Aachen vs. Aix La Chapelle

With Angie on her way out and Emmanuel challenged at home, Germany and France had a low-key confirmation in Aachen of both countries’ willingness to get ever closer, if slowly. This is now a 56-year old process after all.

That was quickly derided as yet another attempt by the European leaders to hide the “truth”, i.e. the European integration efforts are going nowhere and the Euro will collapse anytime soon. We have heard that before.

From AlphaValue’s perspective (with admittedly pro Europe predispositions), the Aachen meeting is merely an opportunity to bring to the fore a few valuation metrics through country analytics. No competition here but just a few observations as it is clear that, 56 years on, few French investors will know what Deutz AG does as well as few amongst their German cousins will have had a look at Virbac SA, to quote but two names.

The relative performance of the German and French coverages over the last five years shows that the two sets of corporates have essentially had similar performances up to last year when Trump’s tweets managed to slowdown world GDP growth expectations. This had a direct impact on export-driven German issuers.  (As a reminder, comparing indices (CAC vs. DAX) would not be suitable due to different performance-tracking methodologies.)

German stocks (pink) vs. French ones (blue) and relative green

What universes?

Below is a summary view of the compared universes. At pixel time, the upside potential is higher on French stocks at 17% vs. 9% but this may well be construed as a degree of inbred caution of AlphaValue’s German analysts. The risks attached are about the same but, intriguingly, the business models seem to be less strong (Fundamental Strength) in Germany. This is largely owed to the Auto sector’s margin volatility as well as that of second-liner industrials (Bilfinger, Thyssen Krupp, SGL, etc.).

Valuation front

Essential valuation analytics between the two countries through their listed major companies show rather consistent earnings growth outlooks for 2019 (+9%) and similar valuations except for a 10% premium for the privilege of holding French stocks (sticking to CAC40 names would generate essentially the same ratios with a 2019 P/E at 11.8x). This should not be a surprise as European-listed stocks at large tend to be exposed to world markets anyway. Their outlooks are rather well shared.

Compared valuations

Non-financial metrics

On non-financial metrics, the two universes are also strikingly similar. Consider governance metrics, average wage, exposure to the $, exposure to Asia. France is more US dependent, Germany is more Asian geared. On governance, German issuers seem to tick the right boxes more frequently.

In all, and it is not a surprise, the listed worlds of the two largest continental economies hardly show a difference. The Aachen treaty of 2019 may not be very substantial in terms of political convergence but the economic reality of globalisation has already achieved that to listed equities.