“We invest in companies with Pricing Power”: Timothée Malphettes, Delubac AM

We had the pleasure to interview Timothée Malphettes, Portfolio Manager of Delubac AM, in the last Rankia Funds Experience Andorra. Delubac AM is a French asset manager that was founded in 2000, focused in European equities with a Pricing Power approach.

The fund presented by the asset manager is the Delubac Pricing Power, a European equity product that invests in Large Caps companies.

Timothée Malphettes has been related in asset management industry during the last fifteen years. He has been part of various firms teams as Societé Privée de Gestion de Patrimoine (SPGP), MMA FINANCE or Covea finance.

What has been the main source of performance of the fund this year 2019?

The main contributors of the year 2019 are positions that have been in the portfolio for more than 5 years such as Atos, Ferrovial, Leonardo, SAP and Schneider Electric. Buzzi Unicem, Ingenico, OVS and Pets At Home, that were negative contributors last year have recovered strongly and are positive this year. Finally, Volkerwessels, on which there is a takeover initiated by the majority shareholder, has shown strong performance. In terms of sector, clearly Technology has been the main contributor.

What is the asset allocation of the fund? What percentage of liquidity do you have in your portfolio?

We only invest in companies with pricing power. Currently, the fund is close to 100% invested. The level of cash is not a function of our view on the market but more a consequence of the stock picking. We recently saw good opportunities of investment.

What type of companies are overvalued in the portfolio?

We do not think that any of our companies held in the portfolio is overvalued. We think that each company has good prospects for 2020 and beyond and thus has solid upside potential in the short to mid-term. We are very attentive to operational momentum and we are monitoring closely earnings momentum and valuations. Over the last 2 years, investors have only bought expensive stocks. That could prove risky in 2020.

What has been the investment thesis of a company recently incorporated into the portfolio?

Verallia, a direct competitor to Spanish company Vidrala, is one of the latest holdings added to the fund. Verallia is the glass packaging leader in Europe. It enjoys a good growth dynamic thanks to four main reasons: market share gains, excellent pricing power, premiumisation of its offering (more and more high end spirits and wine bottles) and finally, though it is still early days, substitution to plastic packaging.

On top of a good and visible growth story. Verallia will experience a noticeable expansion of its EBITDA margin. Under the ownership of Saint-Gobain until 2015, Verallia did not undertake any actions to improve its costs base. Finally, thanks to a very good cash conversion, Verallia will be able to make small bolton acquisitions and pay healthy dividends.