Stop Thinking About Banca Monte Dei Paschi, Italy Has More

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Summary

Italy is agonizing with his banking sector; bank sector weight is 19.57% of total Italian market.

FTSE Italia All-Star, grew 199% in the last five years.

FTSE Italia All-Star is trading at a P/E of 19x.

Stop thinking about Banca Monte Dei Paschi (OTCPK:BMDPY), Italy Has More! Concerns over the Italian banking industry could provide astute investors with entry points and some good bargains, if they know where and how to look.

In the last year, some Italian companies, especially those that trade in the FTSEMIB, suffered because they are listed in Italy. Italy is agonizing over its banking sector, which changed the perception of all the other Italian companies.

Based on the FTSE Factsheet of Borsa Italiana, total market net capitalization is 320,520 EURm and the Italian Bank sector accounts for 19.57 percent of the total market.

What about the other 80 percent? Besides banks, we still have great companies with strong competitive advantages, such as I.M.A. (OTC:IMIMY), Interpump (OTC:IPGLF), (Fast Revenue Growth Thanks To M&A), Brembo (OTC:BRBOF) and many others. Those companies, in industries with high entry barriers, are continuing to grow and make Italians proud.

If we move our attention from the FTSEMIB to the FTSE Italia All Star - an index that includes Italian companies with a capitalization less than €1 billion, and some strict requirements about transparency, liquidity, and corporate governance - we can see how those companies outperformed in the last five years.

FTSE Italia All-Star increased 199 percent in the last five years, while the S&P 500 increased only 77 percent and the Russell 2000 increased only 82 percent.

Source: Google Finance

Half of the companies in this index have less than 30 percent of their revenue in Italy. When Jay Sukits, a University of Pittsburgh professor was comparing Italy and Greece, he said, "If a company does 70 to 80 percent of its business outside Italy, it should be OK."

This is because a lot of companies' products have strong international demand. These companies, beyond those that have a strong competitive advantage, also can increase growth in the coming years thanks to the strong US dollar.

Companies

% revenue from Italy

Eurotech S.p.A.

0.0

Prima Industrie S.p.A.

0.0

Saes Getters S.p.A.

1.2

STMicroelectronics NV (NYSE:STM)

1.6

Saipem SpA (OTCPK:SAPMY)

3.6

Tesmec S.p.A.

6.7

Exor S.p.A. (OTCPK:EXOSF)

6.8

Ferrari N.V. (OTC:RACE)

6.9

Datalogic S.p.A. (OTC:DAGCY)

8.6

Cementir Holding S.p.A.

9.0

Fidia S.p.A.

9.1

B&C Speakers S.p.A.

9.5

CNH Industrial N.V. (NYSE:CNHI)

9.7

Massimo Zanetti Beverage Group S.p.A.

9.9

Tenaris S.A. (NYSE:TS)

10.3

IMA S.p.A.

10.7

YOOX Net-A-Porter Group S.p.A. (OTCPK:YXOXY)

11.3

Buzzi Unicem SpA (OTCPK:BZZUY)

11.5

Brembo S.p.A. (OTC:BRBOF)

11.9

Elica S.p.A.

12.0

De longhi

12.0

Nice S.p.A.

12.7

Prysmian S.p.A. (OTCPK:PRYMY)

13.4

Italcementi SpA (OTCPK:ITALY)

13.4

Mondo TV S.p.A.

14.6

Biesse S.p.A.

15.0

Interpump Group S.p.A. (OTC:IPGYY)

15.2

Moncler S.p.A. (OTC:MONRY)

15.3

Leonardo - Finmeccanica S.p.a.

16.2

El.En. S.p.A.

17.7

Luxottica Group SpA (NYSE:LUX)

18.0

Panariagroup Industrie Ceramiche S.p.A.

19.6

Recordati SpA

20.2

Landi Renzo S.p.A.

20.3

Digital Bros S.p.A.

20.5

Isagro S.p.A.

21.4

La Doria S.p.A.

21.5

Astaldi S.p.A. (OTC:ASTLY)

22.6

Ansaldo STS S.p.A. (OTCPK:ASDOY)

23.3

Amplifon S.p.A. (OTC:AMFPY)

24.0

Diasorin (OTCPK:DASOY)

25.4

Davide Campari - Milano SpA (OTCPK:DVDCY)

26.4

Salvatore Ferragamo SpA (OTCPK:SFRGY)

26.6

Gefran S.p.A.

28.9

Source: Author's Work

Companies with low revenue from Italy are disconnected from the overall Italian economy, which makes some of them undervalued. Getting more of their revenue from outside Italy provides these companies with a better competitive advantage due to a more diversified revenue base.

If investors want to get some good Italian bargains, they must look at this index.

Currently, the FTSE Italia All-Star is trading at a P/E of 19x. That is really low if you consider the median P/E is 23x.

Source: Author

Conclusion:

The Italian economy may not be in good shape. However, I believe potential future turmoil in the Italian financial market due to the banking sector can create some good entry points for investors.

I believe FTSE Italia All-Star is one of the best indexes to find some good quality businesses. It is not expensive, and actually trades at a 20 percent discount. This should catch the attention of international value investors.

Investors usually base their opinions about Italian companies simply on macroeconomic data, rather than using a detailed, bottom-up assessment to understand the business's intrinsic worth.

Investors should pay attention to companies with strong expertise and competitive advantages, understand their true value, and wait for a good entry point.

Disclosure: I am/we are long IPGLF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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