Interactive Investor

3 great European shares for your ISA in 2023

15th March 2023 09:15

Rodney Hobson from interactive investor

The recent run on bank shares has created buying opportunities in the finance sector, and overseas investing expert Rodney Hobson has put three on his buy list.

    Finding solid European companies paying attractive dividends to tuck into your ISA is surprisingly much harder than for US companies. The finance sector may offer the best opportunities as the financial year approaches its end.

    This week’s run on bank shares has created buying opportunities in the sector and one possibility is Spanish outfit Banco Santander SA (XMAD:SAN), which also has a strong presence in the UK. This is a truly international bank with outlets elsewhere in Europe plus North and South America.

    Most of its revenue comes from retail banking but it also has divisions covering corporate and investment banking, wealth management and insurance. It also has ambitious plans, such as adding another 40 million customers over the next 2-3 years after attracting a similar number since 2014.

    If this works, it will enable Santander to increase revenues by 7-8% a year while improving the bank’s efficiency and return on capital.

    Investors will benefit from a plan to return 50% of profits to shareholders, including a €921 million share buyback programme that has just been approved.

    Figures for 2022 suggest Santander is well on track to deliver its promises. Total revenue rose 12% to €2.15 billion thanks to a 16% surge in net interest income, while pre-tax profits edged up 4.8% to €15.25 billion, with a positive performance across all regions apart from one or two question marks over the UK. The dividend total was raised 18% to 11.78 cents.

    The shares have recovered impressively since slumping well below €2, but a recent rally has run out of steam at around €3.80, which could prove to be a ceiling in the short term. This week’s run on banks took the shares down to €3.33, which looked to be a drop too far and they are already picking up again so the chance to buy may be short-lived.

    The price/earnings (PE) ratio now allows for a lot of bad news at 6.7, while the yield, although not overwhelming, is a respectable 3.2%.

    Source:  interactive investor. Past performance is not a guide to future performance.

    Insurance is inevitably a somewhat risky business as you never know what disaster is round the next corner, but Allianz SE (XETRA:ALV) has a wide spread of products that offers considerable stability, mainly life, motor, home, travel and personal liability. This type of insurance also means that individual claims are likely to be comparatively small, so there will not be one big hit that blows Allianz off course.

    Although operations are mainly in Europe, there is also some exposure to the United States and Australia, all reasonably reliable markets.

    Revenue and profits can vary from quarter to quarter, but Allianz managed to increase revenue in the fourth quarter of 2022 compared with a year earlier and swung into a net profit if €2.11 billion after losing €165 million in the previous final quarter.

    Over the past four years there seems to have been a solid ceiling at €220-230 and the shares are not much below that level at the moment, so the upside may be limited. On the other hand, a yield of 5.1% looks very attractive in such a solid company.

    Source:  interactive investor. Past performance is not a guide to future performance.

    An alternative composite insurance company is AXA SA (EURONEXT:CS) (EURONEXT:CS), originally a life insurance and savings group with operations almost exclusively in France but now covering all aspects of insurance Europe-wide and with interests in the US.   

    Although net income fell 11% in 2023, this was because of a revaluing of assets. A truer picture was the 7% increase in underlying earnings on revenue 2% higher. The total dividend rose 10% to €1.70 and a €1.1 billion share buyback programme has just been launched.

    AXA shares have peaked at just under €30, a level that should be topped soon given the unchallenging PE ratio of 9.1 and the attractive yield at 5.6%.

    Source:  interactive investor. Past performance is not a guide to future performance.

    Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

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