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Goldman Sachs picks 20 stocks to ride Europe's push toward a greener future


This image shows Vestas' V126-3.3MW turbines at a site in Finland. 

Courtesy of Vestas Wind Systems A/S

The European Union's landmark plan to become climate-neutral by 2050 promises to overhaul the bloc's economy, and 20 regional companies are well placed to capitalize on these changes, according to Goldman Sachs.

The EU Green Deal, which the U.S. investment bank termed the "largest economic stimulus Europe has seen since the Marshall Plan," aims to achieve net zero carbon emissions by 2050 and a 50%-55% cut in emissions by 2030 compared with 1990 levels.

Along with protecting long-term wealth by tackling climate change, Goldman analysts believe the plan — which they "conservatively estimate" will cost in the region of 7 trillion euros ($7.9 trillion) — will boost short-term GDP (gross domestic product) and employment thanks to a "major investment wave in power infrastructure, buildings renovation, automotive and industrials."

Utilities

Goldman analysts suggested that the boost to capital expenditure brought about by the 27 EU member states' National Energy Plans (NEPs), the action plans for countries to hit the bloc's 2030 decarbonization targets, could see a spike in earnings for European utilities much sooner than expected.

The note projected that NEPs imply around a 65% capex acceleration in clean infrastructure (renewables and networks) in Europe versus the current run rate, with "visible effects" as of 2021.

"As the support for 'net zero' climate policies continues to gain strength, we adjust our estimates to reflect the investment tailwinds from the NEPs (we now capture about two-thirds of this capex in our bottom-up estimates), with our new forecasts implying c.2.5% upgrades in 2025-30 estimated earnings per share (EPS) on average," the note said.

This puts the bank's "Climate Champions" grouping of stocks at earnings-per-share (EPS) growth of around 9% per annum between 2020 and 2030, with the potential to hit 15-20% if the capex acceleration is faster than modeled. EPS refers to a company's net profit divided by the number of common shares it has outstanding and is a popular metric used by traders to gauge a company's value.

In the European utilities sector, Goldman issued "buy" recommendations on Italian multinational energy company Enel, Germany electric utility RWE, Spain's Iberdrola, Portugal's EDP and Spanish subsidiary EDPR, Danish multinational Orsted and Britain's SSE, with the ripple effect of the green revolution extending beyond just the bloc itself.

Transport

The automotive and transport sectors were identified as potential beneficiaries from the green investment windfall, owing to substantial investment by major economies in overhauling the industry, including potential incentives and scrappage schemes. The French government has outlined an 8 billion euro support package for the automotive industry, including more than 1 billion euros of support to stimulate demand for electric vehicles rather than combustion engine cars, and Goldman issued a "buy" recommendation for Renault on this basis.

Rail network Alstom was also recommended on account of government stimulus and European domestic rail liberalization.

Volkswagen is well poised to gain market share in the green revolution, analysts suggested, on account of what they termed a more "all-in" approach to electric vehicle deployment than its peers and a strong focus on battery electric vehicles.

"We believe that VW's approach has the potential to yield a significant competitive advantage over the coming years," the note said.

"This advantage could manifest itself in market share gains (up to 3.5% in a Blue Sky scenario and potentially worth 109 euros per share we estimate), lower investment requirements (up to 50%), reduced manufacturing costs (up to 30%) and economies of scale."

German parts supplier Hella and Belgium's Umicore, which produces cathode materials for electric vehicles, were also identified as beneficiaries of the Green Deal.

Building and infrastructure

The Green Deal is expected to lead to a renovation wave as governments invest in making buildings more energy efficient. French industrial group Legrand, the world's largest provider of switches and sockets, was highlighted by Goldman as a key beneficiary, with more than 40% of its EBIT (earnings before interest and taxes) exposed to European construction.

One of Legrand's main distributors, Rexel, was also named as one of the companies most exposed to potential renovation driven by the Green Deal from 2022 onward, along with Saint-Gobain, Vinci and Covestro.

In terms of renewables specialists, Vestas Wind Systems was identified as the best positioned wind manufacturer. Telecoms cables companies Prysmian and Nexans rounded off the list, with cables expected to show stronger growth than over the prior 20 years owing to "rising wind offshore connections, including a globalization of the industry."

"We also expect better margins on the high voltage segments, owing to better industry capacity utilization and leading market share positions," the note added.

Disclaimer: Goldman Sachs policy prohibits its analysts and members of their households from owning securities of any company in the analyst's area of coverage. Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Goldman Sachs also certifies that no part of its compensation is related to the specific recommendations or views expressed in the report cited in this article.


Source: Goldman Sachs picks 20 stocks to ride Europe's push toward a greener future

The Real Test of Europe’s Banks Comes This Fall


Second-quarter results from Europe’s banks won’t be great, but it is in the second half that the sector faces its toughest test.

Lenders’ profits have already been crushed by the economic fallout of the global pandemic. Yet the true scale of the damage will only start to be revealed over the coming months, as European economies reopen and governments unwind some of their extraordinary support.

The...


Source: The Real Test of Europe’s Banks Comes This Fall

Europe fears complacency; virus hits 'full speed' in Africa


  • A member of the Bangladeshi immigrant community, right, has a swab being taken to test for COVID-19 outside a healthcare center in Rome, Thursday, July 9, 2020. Italy, the onetime European epicenter of the outbreak, went on alert about possible infections in the Bangladeshi immigrant community after a cluster of about a dozen cases was traced to a recently returning Bangladeshi worker in Rome. (Mauro Scrobogna/LaPresse via AP) less A member of the Bangladeshi immigrant community, right, has a swab being taken to test for COVID-19 outside a healthcare center in Rome, Thursday, July 9, 2020. Italy, the onetime European epicenter of the ... more Photo: Mauro Scrobogna, AP
  • Photo: Mauro Scrobogna, AP

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    A member of the Bangladeshi immigrant community, right, has a swab being taken to test for COVID-19 outside a healthcare center in Rome, Thursday, July 9, 2020. Italy, the onetime European epicenter of the outbreak, went on alert about possible infections in the Bangladeshi immigrant community after a cluster of about a dozen cases was traced to a recently returning Bangladeshi worker in Rome. (Mauro Scrobogna/LaPresse via AP) less A member of the Bangladeshi immigrant community, right, has a swab being taken to test for COVID-19 outside a healthcare center in Rome, Thursday, July 9, 2020. Italy, the onetime European epicenter of the ... more Photo: Mauro Scrobogna, AP

    Europe fears complacency; virus hits 'full speed' in Africa

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    BELGRADE, Serbia (AP) — Asian and European officials pleaded with their citizens Thursday to respect modest precautions as several countries saw coronavirus outbreaks accelerate or sought to prevent new flare-ups, while the virus showed no signs of slowing its initial advance in Africa and the Americas.

    Following two nights of anti-lockdown protests in Serbia, authorities banned mass gatherings in the capital of Belgrade amid an uptick in confirmed COVID-19 cases. Officials elsewhere in Europe warned of the risk of new flareups due to lax social distancing, while officials in Tokyo and Hong Kong reviewed nightclubs, restaurants and other public gathering spots as a source of their latest cases.

    Infections mounted at a frightening speed in the countries with the world's highest confirmed caseloads — the United States, India and Brazil. Between them, the three account for the majority of new cases worldwide reported daily.

    India on Thursday reported 25,000 new cases; the United States on Wednesday reported just short of the record 60,000 cases set a day earlier, and Brazil reported nearly 45,000. In the U.S., the total number of confirmed cases has passed 3 million — meaning nearly one in every 100 people has been confirmed as infected

    The head of the Africa Centers for Disease Control and Prevention said the continent would be wise to prepare for the worst-case scenario as virus-related deaths passed 12,000 and confirmed cases climbed fast. A day after confirmed virus cases across Africa surpassed half a million, the total was over 522,000, and the actual number of cases is unknown since testing levels are low.

    ’We’ve crossed a critical number here,” Africa CDC chief John Nkengasong said of the half-million milestone. “Our pandemic is getting full speed.”

    Much of Europe appeared to have put the worst of the crisis behind it, at least for now. But Serbia has emerged as a new focus of concern — and of unrest. On Thursday, authorities banned gatherings of more than 10 people in Belgrade, the capital, in what they said was an effort to prevent the further spread of the virus. They also ordered shorter working hours for businesses such as cafes and shops.

    “The health system in Belgrade is close to breaking up,” Serbian Prime Minister Ana Brnabic said. “That is why I can’t understand what we saw last night and the night before.”

    “It will cost us, there is no doubt,” Brnabic said, referring to the possible spread of the virus after large protests which featured little social distancing or mask-wearing.

    Serbia, which has a population of about 6.9 million, has confirmed more than 17,000 cases of the new coronavirus, including 341 deaths. A few hundred new infections are being reported daily. Critics accuse President Aleksandar Vucic of letting the crisis spin out of control by lifting an earlier lockdown to allow for an election last month that tightened his grip on power.

    Vucic's announcement this week that new measures would include a lockdown sent thousands into the streets, and rock-throwing demonstrators fought running battles with special police forces. The new government measures don’t include the originally planned weekend curfew, but effectively ban further protests.

    Flare-ups of new virus cases are causing concern in several parts of the world, and in some cases leading to the reintroduction of restrictions on public activity.

    In France and Greece, officials warned that people were too frequently ignoring safety guidance. The French government's leading coronavirus adviser, Jean-Francois Delfraissy, lamented that “the French in general have abandoned protective measures.”

    “Everyone must understand that we are at the mercy of a return (of the virus) in France,” Delfraissy said. “It suffices to have one super-spreader in a gathering and it will take off again.”

    Greek government spokesman Stelios Petsas said authorities were “determined to protect the majority from the frivolous few.” He said the government may announce new restrictions, if needed, on Monday.

    Petsas said authorities were focused on the rising number of cases in nearby Balkan countries and tourists who traveled to Greece over the land border with Bulgaria.

    In Australia, which had initial success containing the outbreak, authorities on Thursday reported 179 new cases, most in Melbourne, where authorities are battling a resurgence and have imposed a new six-week lockdown.

    Tokyo confirmed more than 220 new cases Thursday, exceeding its record daily increase from mid-April and prompting concerns of widening of the infections. Tokyo’s more than 7,000 cases are about one-third of Japan's total.

    “It’s a wake-up call,” Tokyo Gov. Yuriko Koike told reporters. “We need to use extra caution against the further spread of the infections.”

    Experts on Tokyo’s virus task force said the majority of recent cases were linked to night clubs but rising infections from households, workplaces and parties raised concerns the virus is spreading in the wider community.

    Hong Kong moved to tighten social-distancing measures after it reported 42 new infections on Thursday. Rules for restaurants, bars and fitness centers will be tightened for two weeks starting Saturday.

    In India, research by the Institute of Mathematical Sciences in Chennai shows that the reproduction rate of the virus ticked up in the first week of July to about 1.2 after it had steadily fallen from a peak of 1.8 in March. The rate needs to be below one for new cases to start falling.

    ___

    Moulson reported from Berlin. Nick Perry in Wellington, New Zealand, Dusan Stojanovic in Belgrade and Associated Press reporters around the world contributed to this report.


    Source: Europe fears complacency; virus hits 'full speed' in Africa



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