Company Reports

The network partner model-based companies in China have gained parcel volume share from direct operation-based companies, with share rising to 78% in 2023 from 76% in 2022. The six largest express delivery companies controlled around 87% of China’s parcel deliveries by volume in 2023, based on data from the companies and China’s State Post Bureau. With share already high, we think further volume share gain is limited for the network partner model-based companies.

Agnico Eagle is the world’s third-largest gold miner by production, operating mines in Canada, Mexico, Finland, and Australia, reflecting the company’s focus on lower-risk jurisdictions. Its four cornerstone assets each produce roughly 350,000-700,000 ounces of gold annually, consisting of Detour Lake, Canadian Malartic, Meadowbank and Meliadine. All four are in Canada. These mines accounted for around 60% of the company’s production of 3.4 million ounces of gold in 2023, with the company also producing minor amounts of copper, zinc, and silver. Agnico Eagle had about 15 years of gold reserves at end 2023.

TPG Telecom is grappling with structural changes in the Australian telecommunications market. Rollout of the national broadband network, or NBN, and take-up of high-traffic products such as video streaming, will increase the demand for broadband and backhaul capacity. However, the NBN will also force TPG Telecom to become a reseller, hitting its consumer broadband margins.

Since its public listing in 2010, Luxshare Precision has successfully penetrated Apple's supply chain, and Apple’s share of Luxshare’s overall sales has increased to more than 75% in 2023 from less than 10% in 2011. Over the past decade, the company has built up a solid track record at Apple, which has enabled Luxshare to expand its footprint beyond cables and connectors for iPhones and MacBooks to acoustic, haptic, and assembly services for AirPods and Watch. Despite often entering into Apple’s competitive supply chain as a second- or third-sourced player, Luxshare has managed to maintain an average gross margin of 15% between 2019 and 2023. This has contributed to the firm’s average return on invested capital of 20% over the same period.

Unibail-Rodamco-Westfield was formed in 1968, acquiring several large malls through to 1995 and offices thereafter. In 2000 it launched a conventions and exhibitions business and is now a European leader in the sector. In 2007 Unibail merged with Rodamco, becoming the largest retail REIT in continental Europe.

Vale is the world's largest iron ore miner and a key supplier to the global steel industry. It is leveraged to Chinese raw materials demand, which we expect to slow as the country's infrastructure-led investment boom wanes and as recycled steel becomes a growing source of supply.

CSR is one of Australia’s leading building materials companies, producing bricks, plasterboard, insulation, fiber cement, aerated autoclaved concrete, and a variety of complementary building products. CSR manufactures and distributes recognized brands such as Gyprock plasterboard, PGH bricks, Monier roof tiles, Bradford insulation, and Hebel panels. It also holds a 25% effective interest in the Tomago aluminum smelter in a joint venture. Property development of surplus and excess land is also a key valuation driver, with a property portfolio valued at over AUD 1.5 billion.

China Education Group is one of the largest private higher education providers in China. Over the years, it has built a strong portfolio of higher vocational education schools. Many of CEG's schools are in economically vibrant areas. Large population inflows and low gross enrollment rates create strong demand for quality education in such areas. We expect CEG to continue benefiting from that.

Because of its intangible assets, including brand strength and intellectual property, Porsche has a narrow economic moat rating. The brand is synonymous with motorsports and highly engineered, fun to drive, sports cars. Brand strength has enabled a premium to luxury price range across Porsche's product portfolio, while intellectual property supports the brand image from racing-inspired engineering and well-executed product. Porsche is one of only a handful of automakers to which we assign an economic moat.

Founded in 1993, Longyuan is a pioneer in China’s wind power development. This first-mover advantage, coupled with a capable management team, enabled the firm to secure better wind farm locations, which helps to maximize wind farm utilization rates. Longyuan’s annual wind power utilization hours have consistently outperformed the industry average in China by more than 50 hours during the past decade. Longyuan is the world’s largest wind power producer with consolidated installed wind capacity of about 27.8 gigawatts, or GW, as of end-2023.

Zurich Insurance is one of the best-quality companies in our European insurance coverage, and it is a truly special business. The ownership of Farmers Management Services provides the company with an unusual uplift in returns delivered to shareholders. And we believe this business and these returns are well protected by the long-standing attorney-in-fact agreement. The relationship between Farmers Exchanges and Farmers Management Services has been in place since the exchanges were founded nearly 100 years ago. This makes it unlikely that the relationship will change and any change would have to be agreed by upon every single Farmers Exchange policyholder. That would involve a lot of paperwork. Margins and returns in FMS touch 30% and in the world of insurance that's almost unrivaled.

We view TriNet as well placed to take share of the expansive, fragmented small and midsize business payroll and human capital management market, through industry consolidation and rising demand for comprehensive, outsourced solutions. Regional providers or do-it-yourself solutions such as Intuit’s QuickBooks or Microsoft Excel service most of the small-business market, creating meaningful scope for greater penetration by value-added providers like TriNet.

Roper Technologies compounds cash flow by acquiring leading businesses in niche markets with durable competitive advantages and redeploying excess cash to acquire additional businesses with incrementally higher rates of return. The firm has pivoted from a legacy industrial base to a diversified technology company dominated by sticky software companies with wide economic moats, including multiple firms with gross retention rates above 95%.

Before its 2017 merger with Swift Transportation, Knight Transportation was the 12th-largest full-truckload carrier in the United States, with a history of exceptional execution, including average return on invested capital in the low teens—an unusual accomplishment in trucking. Knight's long-standing laser focus on network efficiency has served it well; its legacy operating ratio, or OR, (expenses/revenue, excluding fuel) averaged in the mid-80% range before the Swift deal, versus an industry average that traditionally exceeds 90%.

L3Harris Technologies is the sixth-largest US defense contractor by sales. It formed in 2019 from the merger of L-3 Technologies, a sensormaker that operated a decentralized business focused on inorganic growth, and the Harris Corporation, a sensor and radio manufacturer that ran a more unified business. Underpinning the merger was an assumption that additional scale would primarily generate cost synergies and eventually, the firms could produce meaningful revenue synergies. With the recent addition of ViaSat's tactical data link business and most recently the $4.7 billion acquisition of Aerojet Rocketdyne, L3Harris has opportunistically vaulted its strategy forward into becoming a more well-rounded defense prime contractor, adding munitions, space exploration, and hypersonic missile components and capabilities to its very radio- and communications-heavy base. That said, Aerojet supplies components to many other defense contractors, which isn't likely to change, and competes with the space segment of Northrop Grumman. We think it will take time for meaningful revenue synergies that weren't already in the backlog for L3Harris, ViaSat, or Aerojet to materialize.

Ball is the world's largest producer of aluminum beverage cans. Used primarily for carbonated soft drinks and beer, aluminum cans are historically a low-growth industry but one with favorable competitive dynamics for incumbents. Ball became the world’s largest producer of aluminum beverage cans in 2016 with its sizable acquisition of Rexam. As a condition of the acquisition, Ball was required to divest eight aluminum can plants in the United States. These assets were sold to Ball’s competitor, Ardagh. Since the acquisition, Ball has divested from specific industries (such as steel food and aerosol containers) and regions (China) to focus on producing aluminum cans in markets where it can earn strong economic profits.

Allegion, a global leader in security products and solutions, was spun off from Ingersoll-Rand in December 2013. No longer forced to compete for capital from a conglomerate parent, Allegion has employed a more robust acquisition strategy to expand its scale, technological capabilities, and product portfolio. At roughly 80% of sales and 90% of segment profitability, the Americas segment is Allegion's largest and strongest business, with a leading position in locks, exit devices, and door controls. The Americas business has been the key driver of Allegion’s stable, industry-leading profitability, which is a testament to the firm’s market position and pricing power. We expect the Americas business to post mid- to high-single-digit organic growth, on average, over the next five years as the segment capitalizes on the convergence of electronics and mechanical security solutions, and on the increased retrofitting, upgrading, and spending across commercial and residential end markets. The segment’s already strong profit margins should benefit from a mix shift to higher-priced electronics products and operating leverage on increased volume, partially offset by structurally lower profit margins from the acquired access technologies business.

Weatherford is one of the larger oilfield service firms in an otherwise hyper-fragmented industry. However, in terms of size, it remains some distance from the industry’s Big Three: Schlumberger, Baker Hughes, and Haliburton.

NOV is the fourth-largest diversified oilfield-services supplier after Schlumberger, Halliburton, and Baker Hughes. It competes with the Big Three in many end markets, but its significant presence in equipment manufacturing sets it apart. NOV is the largest original equipment manufacturer of rig systems for oilfield-services providers in both onshore and offshore markets. It's maintained majority market share for two decades, controlling over half the market.

Airbus primarily generates revenue by manufacturing commercial aircraft. It benefits immensely from being in a duopoly with Boeing in the market for aircraft 130 seats and up; the companies act as a funnel through which practically all such commercial aircraft demand must flow. This allows both companies to actively manage their order backlogs to reduce cyclicality, despite the intense cyclicality of their customer base.