Unlocking global value

GLOBAL INVESTOR 2.07 Basics — 30
Invest in superior
business models
Taking advantage of a robust economic environment, Swiss small and mid-cap companies have
generated above-average shareholder returns in recent years. We expect them to continue to deliver
solid long-term investment performance thanks to innovation, focus, and superior business models
with a proven ability to adapt to changing global industry dynamics.
Robin Seydoux, Head of European Equity Sector Research, Markus Mächler, Equity Sector Analyst, Olivier P. Müller, Equity Sector Analyst
Credit Suisse maintains its positive stance on global equities. We
believe the world is primed to experience robust economic growth
in the years to come. Globalization, and in particular the urbanization
of emerging market countries like China, has helped fuel a
surge in global productivity growth. These forces are expected to
remain in place and magnify opportunities in the market. With a
forecast expansion of 5% this year after 5.2% in 2006, 2007 is set
to be the fifth year in a global boom. The slowdown that we experience
may turn out less pronounced than most market participants
fear. By mid-year we expect a re-acceleration, as long-term trends
like infrastructure spending in emerging markets will likely gain
momentum again. So much growth from outside the industrialized
world bodes well for corporate earnings, which are expected to continue
to grow above historic averages worldwide. Equity markets
should also benefit from undemanding valuations with estimated
12-month forward price-earnings (P/E) ratios close to their longterm
averages in Europe and in the USA.
Switzerland benefiting from bias towards exports
Along with its European neighbors, the Swiss economy is benefiting
from the integration of emerging markets into the world economy,
a process which has spurred international trade volumes. Moreover,
its bias towards exports offers a superior risk/reward profile. The
Swiss economy benefits from low unemployment, low inflation and
strong exports (40% of GDP is export-related). According to our
forecasts, these advantages should enable the Swiss economy to
post superior economic growth compared to Continental Europe.
Following its impressive performance since 2003, we expect the
Swiss stock market to continue to do well in the years to come,
thanks to a strong global macroeconomic backdrop. In terms of
forward P/E (for fiscal year 2007), the Swiss Market Index is trading
at a premium to the global market, particularly versus European
markets. We think this premium is justified, given the market’s
higher expected earnings growth rate of more than 10% for the
current year.
Swiss small caps: Focus on superior business models
Small caps normally perform well in an environment of healthy
global and domestic economic growth. Although they trade at a
premium to large caps in most regions, they should continue to
benefit not only from attractive financing in a low-interest-rate
environment but also from investors’ risk appetite. Within the Swiss
small and mid-cap landscape, we favor companies that are innovative,
focused, exposed to foreign markets, with superior business
models, and a proven ability to adapt to changed industry dynamics.
In Switzerland, we highlight Hiestand, Calida, Geberit, AFG
Arbonia-Forster, Georg Fischer and Komax.
—Hiestand—
Hiestand is a leading producer of frozen and convenience bakery
goods. Founded in 1967 as an innovative pioneer baking company,
Hiestand has achieved a leading position in the Swiss specialty
foods segment and was listed in 1997. We are impressed by Hiestand’s
excellent business model, which includes both a production
and distribution platform, meaning that Hiestand owns its production
facilities and controls the logistics from the bakery to the endconsumer.
Hiestand’s product range consists of different bakery
products broken down into various stages of completion. Hiestand
uses its own logistics and distribution network to deliver its products
to its customers: convenience stores, gas stations, food retailers
and caterers. Hiestand operates mainly in Switzerland and Germany
and to a lesser extent in Asia. Owing to its superior model, Hiestand
has higher organic sales growth rates and better profitability than
the sector average.