As is evident in other Western European countries, the recovery in France is being driven by the consumer and the reopening of the hospitality industry and retail.
The French unemployment rate fell to 8% in the second quarter and judging by the number of people in Parisian bars and shops lining the Avenue des Champs-Élysées, this is likely to fall again through the rest of 2021.
Indeed, ING highlighted that one of the main issues impacting the French recovery is the lack of labour.
These selection focusing on growth in France take into consideration the consumer driven recovery from COVID-19, but also the wider implications of easy monetary policy.
The ECB are debating how, and more importantly when, to ease monetary policy and their choice of path forward will have a significant impact on French equities.
iShares MSCI France UCITS ETF
The first selection is a broad product in the MSCI France UCITS ETF that tracks French Large and Mid-Cap Equities.
The composition of the index plays nicely into the key themes we see driving the French economy higher in the consumer recovery and ongoing financial conditions.
The two top holdings in the ETF are LVMH and L’Oréal. Both are global companies that provide exposure to the French economy and risk appetite for European equities, but the global recovery.
Booming sales in the luxury sector make LVMH a particularly attractive prospect given the group recorded revenue of 28.7 billion euros in the first half of 2021, up 56% compared to the same period a year prior.
L’Oréal much the same saw a jump in revenue to the tune of 20.7% (LFL) driving a 21% increase in Earnings Per Share.
In addition to the draw of the top two constituents of the index, the ETF provides investors with holdings benefiting from the French economy.
The bank BNP Paribas, a facilitator and beneficiary of the growing French economy accounts for 3.7% of the index posted a 26% jump in Net Income in the second quarter.
Carrefour shares have dipped since the failed merger with Canadian Alimentation Couche-Tard Inc and the weakness raises eyes brows with shares changing hands under 16 Euros. The proposed merger was at 20 Euros.
The fierce fight over Morrison’s highlights the interest for Europe’s best supermarket brands and it’s likely interest could once more ignite in Carrefour.
Notwithstanding potential M&A activity, the group carved out a 34% EPS increase in the first half driven by strong growth across all geographies.
France, still by far Carrefour’s largest market, saw first half revenue excluding fuel rise by 4.7% (LFL) to €9.65bn.
Latin America was the displayed the strongest growth with a like-for-like 10.5% sales rise to €5.79bn.
With Adjusted Net Income of €337m in the first half, shares are attractively valued.
Assuming we see further growth through the second half, the earnings multiple could be in the range of 16x-18x which is more than reasonable given the dividend yield is 3%.
The company is also pouring over the possibility of disposing of international unit’s including that of Poland, a particularly tough market to crack. Tesco disposed of their Polish unit earlier this year.