The Invesco European Growth Fund (Trades, Portfolio), part of Atlanta-based firm Invesco Ltd., released its fourth-quarter portfolio last week, disclosing that it established one new position and sold out of two others.
Managed by a five-person team, the fund typically invests in reasonably priced, quality European companies that have strong fundamentals and sustainable earnings growth to achieve long-term capital growth.
Based on these criteria, the firm took a stake in FinecoBank SpA (MIL:FBK, Financial) and exited its holdings of Lloyds Banking Group PLC (LSE:LLOY, Financial) and TP ICAP PLC (LSE:TCAP, Financial) during the quarter.
FinecoBank
The fund purchased 1.15 million shares of FinecoBank for an average price of 10.41 euros ($11.94) per share, allocating 0.89% of the equity portfolio to the stake.
The Italian bank has a market cap of 5.44 billion euros; its shares closed at 8.95 euros on Friday with a price-earnings ratio of 22.96, a price-book ratio of 6.23 and a price-sales ratio of 7.24.
The chart below shows the stock is trading above Peter Lynch value, suggesting it is overpriced but below its median price-book value.
GuruFocus rated FinecoBank’s financial strength 5 out of 10. While the company has a high cash-debt ratio of 160.3, the debt-to-equity ratio of 0.02 underperforms a majority of competitors. Despite having good margins and returns, the bank’s profitability and growth fared even worse, scoring a 4 out of 10 rating as a result of a slowdown in revenue per share growth over the last 12 months. GuruFocus also warns the bank’s assets are building at a faster rate than its revenue, which indicates operations may be becoming less efficient.
The fund holds 0.19% of the company’s outstanding shares.
Lloyds Banking Group
Invesco sold its remaining 26.6 million shares of Lloyds for an average price of 0.6 pounds (77 cents) per share. The trade had an impact of -1.41% on the equity portfolio. GuruFocus estimates the fund lost 26% on the investment.
The British company, which provides banking and financial services, has a market cap of 37.57 billion pounds; its shares closed at 0.53 pounds on Jan. 4 with a price-earnings ratio of 10.60, a price-book ratio of 0.79 and a price-sales ratio of 1.24.
According to the chart below, the stock is trading below both the Peter Lynch value and median price-book ratio, suggesting it is undervalued.
Despite having adequate interest coverage, Lloyds’ financial strength and profitability and growth were both rated 3 out of 10 by GuruFocus. In addition to having margins and returns that underperform industry peers, the company has seen its revenue per share decline over the last 12 months. One bright spot for the company is it has a business predictability rank of one out of five stars, which, according to GuruFocus, means it typically sees its stock gain an average of 1.1% per year.
Of the gurus invested in Lloyds, David Herro (Trades, Portfolio) has the largest position with 3.02% of outstanding shares. The Causeway International Value (Trades, Portfolio) Fund also holds a stake.
TP ICAP
The European Growth Fund sold all 2.24 million shares of TP ICAP for an average price of 2.82 pounds per share, impacting the equity portfolio by -0.53%. According to GuruFocus, the firm lost an estimated 31% on the investment.
The British brokering company has a market cap of 1.73 billion pounds; its shares closed at 3.08 pounds on Friday with a price-earnings ratio of 38.50, a price-book ratio of 0.97 and a price-sales ratio of 0.99.
Based on the Peter Lynch chart below, the stock appears to be overvalued.
GuruFocus rated TP ICAP’s financial strength 5 out of 10. Although the company has issued roughly 29 million pounds in new long-term debt over the last several years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 0.16, however, warns the company is in danger of going bankrupt. The company’s profitability and growth scored a 4 out of 10 rating, weighed down by declining margins, languishing returns and a low Piotroski F-Score of 3, which indicates operating conditions are poor. The company also has a one-star business predictability rank, which is on watch as a result of declining revenue per share over the last five years.
There are currently no other gurus invested in the stock.
Portfolio composition
The Invesco European Growth Fund (Trades, Portfolio)’s $1.35 billion equity portfolio, which is composed of 60 stocks, is largely invested in the financial services and industrials sectors, followed by smaller holdings in the consumer defensive, consumer cyclical and energy sectors.
Additional financial services companies in the fund’s portfolio include Julius Baer Gruppe AG (XSWX:BAER, Financial), Haci Omer Sabanci Holding AS (IST:SAHOL, Financial), ING Groep NV (XAMS:INGA) and Sberbank of Russia PJSC (MIC:SBERP), among others.
Disclosure: No positions.
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