FCM sees value in energy and telecoms

LONDON (Reuters) - UK-based FCM has invested a significant part of its European Total Return fund in German government bonds as it is bearish on stocks due to worries about an economic recovery, but sees value in oils and telecom shares.

"The recovery will take time and trade will be choppy," said Guenter Ferstl, FCM's managing director and manager of the European fund, which manages 100 million euros (86.7 million pounds).

"Interest rates are likely to go up, once a sustained recovery gets under way as countries are running huge deficits. This will slow down growth. All this is an argument for a lasting bear market," he told Reuters in an interview.

The fund, which has allocated about 20 percent of its portfolio to equities, however, sees some interesting picks and favours the oil and gas sector. Ferstl entered into the sector in July as he found several extremely cheap energy companies, with strong balance sheets.

"Energy stocks have been hammered by analysts as they cut long-term oil price outlook and refining margins. Longer-term, I think oil prices will go up. It is getting more expensive to extract oil which will help push crude higher. I do not see it going back down to $30-$40 (18.2-24.3 pounds)a barrel," Ferstl said.

Crude oil traded at around $67 a barrel on Friday.

The fund has invested in Total (TOTF.PA). Ferstl said most people sold the stocks on concerns that the refining margins would be weak and hurt results. But Total's results surprised on the upside when it reported in early May.

Total posted a smaller-than-expected drop in its first-quarter net profit despite lower oil prices and production.

OMV (OMVV.VI) is another company in the sector which has a strong balance sheet and is well managed. The company currently trades cheap, with an EV/EBITDA ratio of 2.5 for next year, Ferstl said.

LIKES TELCOMS

The fund is also in favour of the telecommunications sector and started buying the shares in June. Ferstl said he favoured Deutsche Telekom (DTEGn.DE) and France Telecom (FTE.PA) among telecom companies.

"This sector has been very much unloved, but I think earnings are more stable than people assume. Balance sheets look much healthier than they did and companies are not over investing and (over) spending right now," Ferstl said.

"Companies are also benefitting from mobile internet, which was not here five years ago. The introduction of flat rates over per minute rates are also helping telecom companies," he added.

He likes Deutsche Telekom because of the ongoing talks about a potential sale of its UK mobile operations T-Mobile. He said this could be quite a positive trigger for them.

Ferstl said France Telecom has done quite well in its home market and abroad and it's Orange brand was quite interesting.

He is also positive on Austrian biotech company Intercell (ICEL.VI), which he has held for four years. The company has been working with drugmakers such as Merck (MRK.N) and Ferstl expects positive data in the next six months on its Staph aureus MRSA.L vaccine V710.

The FCM European Total Return fund is up 0.75 percent for the year, according to Lipper data, and has outperformed its peers in the Lipper Global Absolute Return sector by 7.52 percent.

(Reporting by Joanne Frearson; Editing by Mike Nesbit)