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Brake maker Brembo's blue chip debut blazes trail for Italy's niche firms
October 6, 2016 / 3:31 PM / 10 months ago

Brake maker Brembo's blue chip debut blazes trail for Italy's niche firms

4 Min Read

MILAN, Oct 6 (Reuters) - Italian premium brakes maker Brembo's debut on the Milan blue-chip index on Thursday highlights the stark contrast between some of the country's lesser-known companies and its dismal overall stock market performance.

Italy is Europe's worst performing market so far this year and some foreign investors have been so transfixed by the Southern European country's macro-economic risks and political turmoil they have missed the rise of niche firms like Brembo.

The benchmark FTSE MIB has slid 23 percent this year, compared with a 19 percent rise in Brembo shares and a 14 percent fall in the FTSE Italia Mid Cap index.

Worries about banks and a stalling economic recovery have been compounded by uncertainty around a Dec. 4 referendum on constitutional reform, making investors wary.

But firms like Brembo, which supplies brake discs and callipers for road and racing cars for automakers such as Ferrari and Porsche, tell a different story.

David Marcus, CEO of U.S. based Evermore Global Advisors, said Italy had long been neglected, but now the country was undergoing big changes with firms improving the quality of their management and focusing their businesses more than ever before.

"Italy has been a tomorrow story for many, many years but these are fantastic times to be doing your homework because so many investors are not looking there," he said. "We are not required to invest there, but we want to. So over time we will have more in Italy, not less."

Brembo has been surprising investors with better-than-expected results quarter-after-quarter and its focus on the higher-margin premium market has helped it weather the storm that hit the auto industry following the 2008 financial crisis.

A firm that grew from a family-run mechanics' workshop in 1961 to a multinational with 7,700 staff across 16 countries is now expanding into aerospace as a new revenue stream.

Brembo's core profit margin topped 17 percent last year, while comparable stocks such as Italian car parts maker Sogefi had a 7.7 margin and German tyre and auto components maker Continental had a margin of 15.3 percent.

Brand strength, technological know-how and a focus on exports are catching the attention of traders and fund managers who highlight companies such as hearing aids maker Amplifon , small appliance manufacturer De Longhi, upmarket exercise machine maker Technogym or Energica Motor, which produces supersport electric motorcycles.

Companies like air traffic controller Enav whose business is regulated are also attracting interest, they said, although December's referendum, which will decide on a constitutional reform being pushed by Prime Minister Matteo Renzi, looms large and investors may wait for that to clear out before making big bets.

Piergiacomo Braganti, head of investments at Banca Albertini Syz & Co, which manages around 3 billion euros ($3.4 billion), said that while a "No" vote in the referendum could hit the battered banking sector hardest, there could also be a spillover to other more promising sectors.

That could be a good time to buy the quality names.

"If there's another indiscriminate sell-off we would be ready to buy companies that have a competitive advantage or operate in regulated businesses, Braganti said. ($1 = 0.8956 euros) (Additional reporting by Agnieszka Flak; Editing by Alexander Smith)

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