PARIS - Templeton Global Investors Inc. is revealing a growing appetite for French stocks.
At a time when some institutional money managers are shunning France because of the country's weak economic conditions and political turmoil, Templeton - famed for its bottom-up stock picking ability - has been boosting its holdings in French stocks.
Already a shareholder in French oil giants Total S.A. and Elf Aquitaine S.A., the money manager revealed last month that it had doubled its holdings in Paris-based aluminum and can manufacturer Pechiney S.A. Templeton now holds 8.85% of Pechiney's equity and 8.67% of its voting rights, becoming the company's second largest shareholder behind the French government.
At the same time, Templeton revealed it has acquired stakes of more than 5% each in Villeurbanne-based Ecco S.A., a company specializing in temporary workers; Fives Lille, a mechanical engineering company located in Paris; and Bail Investissement, a Paris-based company with leasing and rental activities.
Those stocks trade 4.4% to 42.4% higher since year-end, while the CAC-40 index has risen 7.7%.
Jim Chaney, senior vice president of Templeton Global Inc., Fort Lauderdale, Fla., explained: "The French market is now attractively priced. The CAC 40 index has lagged over the last 10 years compared to others in Europe which have performed much better."
Despite others' pessimism about the market's long-term performance, Mr. Chaney said there are "a lot of interesting stocks which are undervalued."
Templeton, which has more than $50 billion in assets under management, has been bullish on the French market for the past two years and may increase its holdings. Some areas, such as real estate stocks, are close to Templeton's threshold of "maximum pessimism" - making them good buys for the value investor.
The manager's stake in Pechiney was made with the view the company's shares were "cheap with a possibility of improved performance within a few years," said Murdow Murchison, a portfolio manager in Templeton's Edinburgh office.
"Pechiney has good quality assets and a new management which has taken a number of steps to cut costs and improve its U.S. subsidiary's performance."
Pechiney is the parent of American National Can Co.
The company was privatized last December, when strikes by French public sector unions unsettled markets. Offered at 187 francs, the stock currently trades around 207 francs.
Mr. Chaney thinks temporary service firm Ecco has strong growth prospects because of France's changing employment structure. "French companies are shying away from permanent jobs and tend to use temporary employment agencies to meet their work needs on a larger scale than they used to," he said.
Ecco "has a strong balance sheet, a lot of cash and is the market leader in France," Mr. Chaney said. The firm's stock price has been buoyed because of rumors the company might be a takeover candidate.
Templeton officials declined to discuss their other stock picks, but those also show signs of classic turnaround situations.
For example, 130-year-old Fives Lille, which supplies industrial equipment and turnkey factories, had seen profits plunge to 14.5 million francs in 1994 from 124 million francs the year before. Eighteen months ago, a new chief executive was installed. Earnings for 1995 and 1996 are expected to be substantially higher because of increased orders. Some 70% of Fives Lille's sales are from overseas, and well balanced across five continents.
Meanwhile, the company has a strong cash position of 1.7 billion francs and no debt. During the past three years, the group has improved its performance, making drastic cuts in expenses and developing its sales network in Asia, and central and southern Europe.
Templeton's commitment to France goes beyond its stock market. The firm opened a Paris office a year ago that might develop into a marketing center. Templeton's major European offices are in Edinburgh, Luxembourg and Frankfurt. The firm manages $3 billion in assets for more than 6,000 European institutional and retail clients.
Francois Carlotti, head of the Paris office, said the firm will offer equity products to institutional investors. In Luxembourg, the firm offers 21 mutual funds, of which six are regional or international.