The Plan Epargne Actions (PEA) was created in 1992 in response to the government’s desire to develop popular shareholding in France. It was supplemented in 2014 by the creation of the PEA-PME dedicated to listed or unlisted shares in Small and Medium-sized Enterprises (SMEs) and Intermediate-Sized Enterprises (ISEs). Both products offer holders tax benefits on dividends and capital gains (beyond a 5-year holding period for both plans).
THE PEA-PME IS 10 YEARS OLD
While the PEA PME shares with its predecessor a geographical constraint (minimum 75% in European equities, i.e. excluding Switzerland and the UK since the Brexit), it also had specific features (also a minimum of 75%) linked to its objective of investing in smaller companies, namely:
- Either a workforce of less than 5,000 people and annual sales not exceeding €1.5 billion or total assets not exceeding €2 billion.
- Or a company with a market capitalization of less than €1 billion, or with a market capitalization of less than €1 billion at the close of at least one of the four preceding financial years, and with no legal entity holding more than 25% of its capital.
MORE FLEXIBLE RULES SINCE THE 15TH OF JUNE
Somewhat surprisingly, but undeniably positive, a decree modifying the eligibility criteria was published on June 15 (see link below), relaxing the conditions for a share to be considered as a PEA-PME.
While the initial criteria of headcount, sales and balance sheet have been retained, the legislator has added the following factor to decide eligibility: “market capitalization is less than €2 billion, or has been at the close of at least one of the four calendar years preceding the financial year taken into account to assess the eligibility of the issuing company’s shares“.
We find this criterion particularly interesting, given that small caps have outperformed the rest of the European market since the end of 2021, with a number of companies having a market capitalization of less than €2 billion, particularly between 2022 and 2023.
A BROADER INVESTMENT UNIVERSE OF AROUND 300 STOCKS
According to our calculations, the new eligibility criteria should enable 300 stocks that could not previously be counted in the PEA-PME pocket to be eligible from now on; this corresponds to an increase of just over 30% in our investment universe, with the following probable effects:
- An increase in average capitalization, since a stock’s market capitalization is often linked to its metrics in terms of sales or headcount;
- An opportunity to invest in more labor-intensive sectors, particularly in industrial and consumer goods stocks.
To showcase this, here are a few examples of companies in Oddo BHF Active Small Caps that are now eligible for PEA-PME criteria:
- IPSOS, one of the world’s leading market research companies, with a market capitalization of €1.8 billion at 12/31/2021 and a workforce of 20,000;
- DO&CO, an Austrian company specializing in top- of-the-range catering for airline business classes and sporting and cultural events (F1, Euro 2024, concerts), whose market capitalization has been below €2 billion for several years (currently €1.8 billion; 13k employees).
- TECNICAS REUNIDAS, a Spanish engineering and construction services group in the energy sector, with an increasingly significant position in renewable energies. Market capitalization of between €400 and €700 million in recent years, with a workforce of 8,500.
