* ECB corporate bond buying seen easing borrowing costs
* Indebted companies with meagre margins to benefit most
* Italian, Spanish banks tipped as winners
* Easier lending conditions to help small caps
* Exporters to get boost from weaker euro
By Francesco Canepa
LONDON, April 16 Shares in some of Europe's
least profitable and most indebted companies are set to
outperform in the coming months if the European Central Bank
starts buying corporate bonds to fight the threat of deflation.
The ECB has opened the door to the purchase of asset-backed
securities such as secured corporate debt to revive economic
activity in the euro zone, a move expected to give fresh impetus
to a 20 percent rally in European shares since June.
Buying corporate debt would lower borrowing costs where they
are still elevated, such as in southern Europe, bringing relief
to companies struggling with high debt piles and meagre profits,
such as Italian and Spanish banks and French car maker Peugeot
"The companies that tend to benefit from QE are those with
very low levels of profits and high financial leverage because,
ultimately, QE stimulates growth," Francesco Curto, a strategist
at Deutsche Bank, said.
He recommended screening for companies which trade at a low
price compared with the book value of their assets - a sign the
market is betting on a structural fall in their profits - and
which also have high debt, anaemic margins and exposure to
Europe's own economy.
Of the 17 companies on the STOXX Europe 600 index which
trade below book value, have more net debt than equity and
convert less than 15 percent of their sales into pre-tax profit,
eight are Italian banks and three are Spanish lenders, Thomson
Reuters StarMine data showed.
They include Italy's largest and third-largest lenders,
UniCredit and Monte Paschi, and Spain's
Others are struggling non-financial companies with net debt
two or three times the size of their equity, such as Italy's
Telecom Italia and France's Peugeot.
To see a StarMine screen of companies with these
characteristics please click: link.reuters.com/jeq58v
BOOST TO SMALL CAPS, EXPORTERS
Small-cap companies were also likely beneficiaries given
their higher reliance on bank loans compared with their
The purchase of corporate bonds by the ECB "would be quite
bullish for the domestic cyclicals and probably for small caps
as well because they should benefit from a better funding
environment," said Emmanuel Cau, European equity strategist at
Among the shares which JP Morgan recommends snapping up to
gain exposure to economic recovery in the euro zone are motorway
group Atlantia, budget airline Ryanair, Spanish
lender Caixabank, and media groups Mediaset
and Atresmedia - which generate almost all of their
revenues in western Europe.
While domestic shares were expected to lead a QE-fuelled
rally in European shares, exporters were highlighted as
longer-term beneficiaries if the euro weakens against the
"What we'll look at is likely to be long-term positions in
... indices and companies that get a lot of their revenue in
dollars or outside the euro zone," Arran Lamont, equity trading
strategist at Citi, said.
With nearly a quarter of its sales coming from North
America, Germany's DAX is the euro zone index with the
highest exposure to a stronger dollar.
The index has underperformed a 25 percent rise in euro zone
blue chips in the past nine months. But "if the euro were to
fall, which is something the ECB would like to achieve as well,
that could also help the DAX and global exporters," JP Morgan's
(Additional Reporting by Vikram Subhedar; Editing by Ruth