Why do French fund managers buy foreign stocks and ignore undervalued French companies ?

Fate has willed that two industrial companies, one in Germany (Norma Group, NOEJ) and the other in France (Montupet, MON) are presently quoted at the same price, about 42 euros.

Based in the Hesse Land, NOEJ is a specialist of engineered joining technology solutions. It owns 19 factories, in Europe, North America and Asia. Its market cap is about 1.3 billion euros. 2013 consolidated sales were up 5% on 2012. EBITDA was up 7%. Montupet is an industry leader in the manufacture of complex cast aluminium components for the automotive industry. Its market cap is about 470m euros. In 2013, sales were up 6% on a constant structure basis. The group will report profit figures in late March.

What is astonishing is that several Paris-based portfolio managers (Amundi, Barclays, Oddo, etc) have bought Norma shares, while ignoring the – huge – potential of the French company.

A potential that has been obvious in the last few months : the Montupet share price has done much better than the Norma share price, with +33% since 1 January 2014 (+16% for Norma), and +140% in the last 6 months (+30% for Norma). French portfolio managers have thus missed the enormous rise of a Paris-quoted company. Why ?

First and foremost, because many Paris-based fund managers are little interested in mid- and small companies quoted in France (there are exceptions of course, such as Talence Gestion and a few others). Mid- and small companies being now fashionable, new funds have been set up, but have invested mainly in non CAC 40 big caps (for example Areva, Faurecia, etc) or in foreign stocks. Secundly, there is a lack of research about « real » mid and smalls in Paris. Many brokers have limited themselves to following the companies who have entrusted them with a liquidity agreement. On the contrary, many German banks/brokers do write about Norma Group : Deutsche Bank, Commerzbank, DZ Bank, NordLB, Main First, Warburg Research, Hauck & Aufhäuser, HSBC (whose German subsidiary writes about Norma in Frankfurt but whose French subsidiary doesn't follow Montupet in Paris...), Berenberg, etc

My own forecast (see the blog : boursenow.blogspot.fr) is that the Montupet share price will go on doing better. French fund managers had better change their ways and grow more interested in Paris-quoted companies...