Going overseas to meet companies can be glamorous. And in many cases it is – if you’re going to meet the likes of Coca-Cola or MasterCard.
Once you get over the redeye economy flights, those companies are used to rolling out the red carpet for investors. They get a lot of visitors.
Not all companies are like that though, and that can be a good thing.
I like visiting and potentially investing in businesses that people don’t know about. Not necessarily small start-ups; just those that are off the main street, away from the scrutiny of most investors – uncovered gems the market doesn’t fully appreciate.
These companies usually have a dusty road leading up to the entrance rather than a red carpet. You often find management teams delighted to see you.
On one trip to Italy, I was the first investor to journey all the way to a company’s headquarters in three years, which amazed me given the company is a leader in its field.
I’ve been on the road around Europe a lot over the past several months. I’ve seen lots of intriguing and quality companies on the Continent, and many don’t see many analysts at all.
In September, a fellow investor and I shared the cost of a rented diesel Renault to visit companies in Belgium and the Netherlands.
We drove well over 500 miles in three days, crisscrossing small towns and some cities to see an array of different businesses.
Some of these were far from the beaten path. At one stop, we gatecrashed a business park canteen because there wasn’t another café or shop for miles around. The locals were definitely not used to seeing a couple of suits having lunch in there.
It was well worth it though. I can’t say which company it was because we don’t own it, but it’s just one of several that I have added to my watchlist of potential European investments for Heritage.
Now I’m not saying that blue-chip companies aren’t a great place to invest – they are. And it can be really helpful when companies are used to fielding questions from analysts and investors. But there really is a vein of hidden gems below the crust of the largest European household names that deserve more attention.
There’s a whole wave of cash flowing into Europe at the moment, but a lot of it seems to be sight-unseen into the giants at the top of the index. We certainly didn’t see many analysts out on the Low Countries’ roads.
When you dig beneath the huge European companies everybody knows, you find scores of other businesses that are intriguing, growing and – best of all – little covered.
In many cases, these companies are world leaders in their fields. They are the suppliers of specialist components for Tesla’s batteries and manufacturers of the machines semiconductor companies use to build chips that go in our electronics. Others are simple businesses run well in a promising market.
We believe we hold several of these companies in the fund right now and keep a close eye on many others.
We own Belgian cinema chain Kinepolis and the Swiss access control company Dormakaba. We also own an Italian financial services business: Cerved.
Many people have written off everything connected with Italy’s broken banking system, but we looked past that to find a fantastic business that provides credit information for businesses and services nonperforming loans. Cerved still feels relatively unknown amongst many investors.
We also own ASML, which is the globally dominant semi-conductor equipment maker. ASML is hardly an uncovered gem, but we believe it still remains fundamentally undervalued.
We often find many businesses on the continent are poorly covered, undervalued or simply misunderstood. It’s a really happy hunting ground for us.
David Harrison is a portfolio manager on the Rathbone Heritage fund. The views expressed above are his own and should not be taken as investment advice.