In recent weeks, early signs that a European recovery is under way have started to mount. Italy and Spain in particular have shown some strong signs of improving growth, manifested through data on car registrations, power demand, and cement volumes. Earnings revisions have also started to stabilize across the region and investors are looking for additional supportive commentary as we move through Q1 earnings season. We maintain our positive view on a European economic inflection and particularly on those companies with leverage to consumer recovery and FX tailwinds. In this context we note that Amadeus, Azimut, Burberry, Easyjet, FCA, L'Oreal & Schibsted are all on our DOR Focus List.
Southern Europe:
- Car registrations accelerated in both Italy and Spain over the course of Q1. Italian registrations +13.8% yoy in Q1, and +15.8% in March. Spanish registrations +32% in Q1 and +40% in March.
- Cement volumes are improving in Italy and Spain, the first non-negative growth recorded in four years (since 2Q11). Spanish cement volumes have been up for the last seven quarters in a row, +12% yoy in March (+8.5% YTD).
- Strong recruitment trends: Michael Page reported strong growth in Southern Europe (+30% YoY) in its 1Q15 results. Hays grew 43% in Spain in the quarter.
- Airport passenger traffic improving. Spanish passenger volumes rose by 6.2% in 1Q15, up from +4.3% in 4Q14 (AENA data). In Italy, we note that passenger volumes at Rome airport were up 9.1% YoY in Q1 (up from a growth rate of +4.4% in Q1 2014).
- Italian power demand is improving. Demand was flat yoy in March. Adjusting for weather and working days, this is the first time demand has been stable since Oct '11.
Broader Europe:
- Signs of corporate spending: SAP reported double digit license growth in Germany in Q1 vs flat to single digit license growth in Q4
- Accelerating hotel revenues: EU-wide hotel RevPAR growth of 5.3% in Q1 2015, up from 3.3% growth in Q1 2014. Accor 1Q results highlighted strong regional performances, driven in particular by the luxury segment in France which benefited from a weak Euro (1Q15 LFL RevPAR +13.4% from +12.7% in 4Q14 and +8.6% in 3Q14).
- Media spend is on the up: Publicis’ beat on organic growth in 1Q was mainly driven by Europe up 1.7% in 1Q after -1% in 4Q14. By geography, France improved to +4.2% and Southern EU returned to growth at +2.7%. Omnicom’s European organic growth also came better than expected +2.7% vs GS +1.5%. French growth turned positive in the quarter.
- Truck recovery datapoints abound: US truck company Paccar has raised its end market outlook in Europe by 7% at the midpoint, consistent with positive recent commentary out of Scania (orders up 40%+ yoy) and MAN (increasing production rates).
- The consumer: Kering reported sales growth in Western Europe of 14 % in 1Q15 vs 6% in 1Q14 (the company notes improvements in both tourist and local demand).