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  • AA UNION CAPITAL Weekly focus

    The outperformance of family businesses

    ■ Years of analysis by the AA Union Capital (AAUC) Research Institute (AAUCRI) have shown that family businesses tend to outperform the wider market.
    ■ This outperformance can not only be attributed to superior financial performance, but also to factors such as a more conservative long-term business focus and a greater emphasis on innovation.

    Special topic

    SNB now expected to raise rates in Q3 2019

    ■ Higher risk perception and stronger-than-expected Swiss economic growth have lifted the CHF recently. We keep a neutral view on EUR/CHF and USD/CHF.
    ■ Even though the Swiss economy is growing dynamically, we push our forecast for the first interest rate increase by the Swiss National Bank (SNB) from March 2019 to September 2019.

    Views and forecasts

    Appendix – AAUC Research Recommendations
    Four of our favored family-owned businesses

    Family businesses tend to outperform the broader market. Below we highlight four attractive family-owned businesses.

    As a conglomerate Bouygues’ (BUY) main share price drivers are the construction (No. 1 constructor in the world) and the telecom businesses in France. Its construction business should gradually improve as the company is benefiting from big North American infrastructure plans and from high quality “smart city” contracts such as “Grand Paris.” Profitability in telecoms should improve on the back of strong momentum in the mobile business where Bouygues has moved to the No. 2 position thanks to its service quality, having historically had the lowest network quality. We also see some potential upside if telecom consolidation returns to France.

    EasyJet (BUY), still dominated by its founder Sir Stelios Haji-Ioannou, is a structural winner in the European short-haul market and benefits from Air Berlin’s and Monarch’s exit. The company has a disciplined focus on driving returns from a high-quality network of largely primary airports and is focused on sustaining its No. 1 or No. 2 position at its key bases, with a proven track record of optimizing returns. In our view, it should continue to gain attractive market share by growing capacity at mid-high single-digit rates.

    Pernod-Ricard (BUY) is a family-owned business that has already gone through several generations and is still managed by the family. The business has been built through the acquisitions of spirits assets that have high barriers to entry such as the capital required to allow for the aging of stock. The company is managed conservatively and delivers strong organic growth and superior returns. Pernod-Ricard is well exposed to premiumization trends in the beverage space, notably in emerging markets.

    Straumann (HOLD) continues to execute on its strategy of entering into so-far untapped markets (aligners, biomaterials, ceramic implants), leading to solid organic growth. Given the high operational leverage innate to the business, the current economic conditions are favorable for Straumann. We retain our positive stance after the recent (albeit minor) correction in valuation, as we believe that likelihood of Straumann continuing to deliver on its strategy is high. Meanwhile, we are watching closely as competitors come back to their feet (notably Nobel Biocare, but also others), which could create some medium-term risks.