German companies are picking up the pace in returning shareholder value and restructuring their busi...
German companies are picking up the pace in returning shareholder value and restructuring their businesses, although the country still lags behind leading European competitors.
Anand Sunderji, European fund manager at Invesco, says Germany is rapidly changing from an old industrial state as a wave of new economy companies come through. Old economy stocks are also restructuring dramatically, from being stakeholder friendly to shareholder friendly.
Sunderji cites Siemens, a spin-off from Epcos, a passive components manufacturer and Infineon, which produces semi- conductors, to realise shareholder value. In the utility sector Veba and Viag merged because of pricing pressure and Germany witnessed a "momentous occasion", according to Sunderji, when Mannesmann was allowed to be taken over by Vodafone.
He says: "That showed the mindset was changing in Germany because five to 10 years ago the merger would have been blocked without needing to state a valid reason for doing so."
Geoff Taylor, European fund manager for Perpetual, agrees the Siemens move was positive but adds it is more a case of Germany playing catch-up to other European countries which have been more nimble in introducing tax reforms to improve business performance.
He says: "It's about time Germany got moving with reforms to help big corporations restructure their earnings and allow banks or insurance companies to unwind without being clobbered by tax. A lot of financials have just been sitting on their industrial and financial holdings rather than pay the high taxes.
"As for Siemens, spinning off its two subsidiaries showed that a company previously run under a Germanic mindset was waking up and realising the world had changed and the performance of Siemens over the last two years has been extremely good."
Sunderji expects more restructuring by traditional finance companies as older firms, they see, need to be leaner. Taylor says there are other European banking markets he prefers to Germany, although he insists he is not bearish on the sector.
Taylor feels country borders are becoming less important and have a decreasing influence on fund managers. He favours life assurance stocks, which he feels will benefit from growth in European savings demand, and companies investing in telecom infrastructure. He adds the Neuer Markt has been a force of change on the German stock market scene. Sunderji agrees highlighting the success of the index, which launched in 1997 and now lists over 200 companies with a market valuation of over £200bn.
Sunderji says: "The biggest success story of the 1990s has been the US because of the Nasdaq, which not only assisted entrepreneurs by making it easier to get a listing but also made it easier to invest venture capital because investors knew they could release the money when the stock was listed."
Sunderji likes consumer electronics retailer Medion which uses partnerships with supermarkets like Aldi in Germany and Tesco in the UK to sell cheap goods. He also likes Highlight Communications which runs the UEFA Champions League, helping organise the tournament format, merchandising and TV licensing.
Mohamed Ali Bernat
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