An equity strategy report from Rabobank International, Amsterdam, published on 30 January, tips Nutreco, Danone and Wessanen as “best picks” in the European Food & Beverages sector. The analysts expect that the negative sentiments towards Nutreco in the food safety debate will fade. For Danone they expect to see strong organic sales growth in “winning segments” (bottled water, fresh dairy). The long-term transformation of Wessanen is expected to pay.

Numico is expected to underperform, as a result of the uncertain outlook of the vitamins, minerals and supplements market in the US and the company’s large exposure to earnings in US dollars. For the European Food & Beverages market as a whole, the analysts expect a continuation of negative earnings news in the weeks ahead, stopping short however of profit warnings. They believe the debate on food quality will shift from initial panic to “a more constructive phase of implementing measures to safeguard the quality of food”, which will give companies with safe operational systems, like Nutreco, the opportunity to distinguish themselves and gain market share. Food & Beverages stocks outperformed the total stock market in the last quarter of 2000, losing only 0.3% as against a loss of 6.8% for the total market. A flight from technology stocks into more defensive stocks was the main cause for the relative outperformance.

The performance of the Food & Beverages sector has a very low correlation with economic growth, the analysts note.

“Best pick” in the European Food Retail sector is Ahold, according to the Rabobank report, which praises the Dutch retailer’s “solid integration process”.

French food retailer Carrefour is expected to underperform as its “integration problems with Promodes” are seen to continue. The Rabobank analysts expect slower growth in luxury goods and non-food products in the short term as well as negative effects of the appreciation of the euro and depreciation of the US dollar.

European Food Retail stocks lost 12.1% since 5 October, significantly more than the overall market. However, the Rabobank notes that most stocks in this sector performed rather well, but the picture was distorted by a strong decline in Carrefour.