DIY Investor Magazine
| Oct 2017
16
EUROPEAN SMALLER COMPANIES
PUNCHING ABOVE THEIR WEIGHT
The rise of the ‘disruptor’ is underway in Europe, and
no more so than in the smaller company space. Ian
Ormiston, manager of the Old Mutual Europe (ex UK)
Smaller Companies Fund, looks at areas of the market
where smaller players are tearing up the status quo to
provide some interesting investment opportunities in the
region.
Everywhere you look, young companies are disrupting
markets long dominated by incumbency. Whether it’s
Netflix re-defining the television experience available to
consumers, Amazon undercutting and stealing market
share from high street retailers,
Uber rapidly making strides in the mini-cab and taxi
market, or Tesla challenging the petrol-burning tradition
in the auto sector, change is afoot. And while we are in
an era of evolution rather than invention, such evolution
is arguably starker, more radical, and more disruptive to
the status quo than any new creation could be.
Such disruption is widespread in Europe, and it is the
region’s smaller companies that are leading the way.
These businesses benefit from being flexible, dynamic,
attractive destinations for talent, and are resolutely free
of the bureaucracy and entrenched mediocrity that so
often hampers their larger peers. They are perfectly
equipped to take advantage of their larger counterparts’
flaws, too.
Indeed, by contrast, larger companies in Europe are
hamstrung by heavy and rigid regulation, incumbency
(the difficulty in getting rid of employees and upgrading)
and having workforces equipped with incorrect or no-
longer-relevant skillsets. Furthermore, such companies
struggle to be nimble enough to keep up with the
technological advancements that are rife in their
business segments.
A MOUTH-WATERING PROSPECT
In the leisure industry, we invest in a German-listed
Italian restaurant chain (you don’t find Italian restaurant
chains in Italy, of course!), Vapiano, that prides itself
on its fast and casual dining experience. Customers
don’t need to book tables, the food and restaurant
décor is of a consistently high standard – all dishes are
prepared individually and in front of the customer – and
as a result the business is busy taking market share
from both lower quality stand-alone restaurants and
larger chains which have lost their customer and quality
focus. Founded just 15 years ago, Vapiano now has 180
restaurants in over 30 countries across five continents.
HOME COMFORTS
Elsewhere in the leisure industry, the hotel sector is
a particularly fertile ground for would-be disruptors.
Dalata, an Irish hotel group, is one such company busy
making waves. With more than 60 hotels in the UK and
Ireland, half of which are in Dublin, Dalata prides itself
on competing on price without compromising on quality.
Run by a highly experienced and savvy management
team, the business consists of standardised three and
four star hotels, all in city centre locations, and priced at
highly competitive (and flexible) levels.
There is a big gap in the UK and Ireland between low
end family-owned and run hotels and hostels, and high
end corporate hotels. This is an area embraced by
Dalata.
Ian Ormiston
Fund manager, Old Mutual Europe (ex UK) Smaller Companies Fund
