Yesterday’s results from GEA concluded the earnings season in our European capital goods sector. With organic growth for the sector slowing to a mere 1.3% in the quarter – down from 1.6% in Q4 – and outlooks pointing to flat demand in Q2, it is not difficult to see why the sector is losing some of its allure. More importantly, with growth leading indicators in Europe rolling over and the FX tailwind losing steam for our EUR and SEK names, it’s hard to see where the incremental positive earnings revisions will come from in 2015. Rather, it’s the bounce in energy prices, notably oil, that could see the drag on sector earnings from our O&G and Mining names ease. We continue to see the best value among the electricals, where ABB and Schneider are our preferred names. Atlas Copco and GEA remain our preferred names among the mechanicals.
* Growth remains elusive.
* Pricing a concern.
* Few end markets standing out.
* Cash on the balance sheets
--> Full note attached