Company Reports

Admiral is a rare example of an insurance company with a narrow moat.

Docusign is the leader in electronic signatures and contract lifecycle management software and is well positioned to capitalize on the evolving industry, in our view. We see existing customers adopting more use cases and expanding seats over time, as well as moving to the Agreement Cloud platform.

Nio is a leading electric vehicle, or EV, manufacturer in China, targeting the premium segment. Its current model portfolio’s retail prices range from CNY 298,000 to CNY 598,000, with a 465-710 km driving range. For new models, Nio started delivery of its midsize ET5 sedan in third-quarter 2022, as well as the mid-to-large five-seater SUV ES7. The company also upgraded its first-generation SUV models ES8, ES6, and EC6 in the second quarter of 2023. It also plans to launch a new mass-market brand in 2024 to seize robust demand while retaining Nio’s premium image.

A wave of covid-19-induced damages has been inflicted on Flight Centre since March 2020. Restrictions on travel and border control, grounding of airline capacity, and strict lockdown measures on consumers created an unprecedented squeeze on the group. However, the measures to execute a drastic reduction in costs (cuts to store network/leases, staff, marketing), combined with the AUD 697 million equity capital raising in April 2020 and the subsequent recovery in travel activities, have stabilized the no-moat-rated group. And recovery to prepandemic level of earnings is on track.

Our constructive view on Coast Entertainment's fundamentals is moderated by the wider macroeconomic factors that affect its theme park operations and the current restructuring efforts to restore earnings after the recent upheavals.

EVT earnings are generated from cinemas, hotels, the Thredbo ski resort, and a portfolio of property investments. The cinema division is dependent on discretionary expenditure and popularity of films from studios, both Hollywood and foreign markets. The emergence of home entertainment systems, broadband-enabled streaming services and the shortening of the release window from film to home format pose an earnings risk longer-term. Cinema exhibitors such as EVT are focused on enhancing the moviegoing experience as a point of difference.

Celsius has amassed impressive volume share gains in the North American functional and reduced sugar energy drink category in recent years, surpassing $1.3 billion in sales in 2023 from just $75 million in 2019. Propelling the momentum, we surmise Celsius’ better-for-you product portfolio and active-lifestyle branding strategically caters to consumers' penchant for healthier alternatives, while a 2022 distribution agreement with wide-moat PepsiCo has bolstered its channel reach and ability to secure shelf space. That said, we remain skeptical that Celsius benefits from any durable competitive advantage based on brand intangibles or cost advantages, given intense competition from resource-rich incumbents with strong brands, such as Monster and Red Bull, and smaller entrants’ propensity to deliver innovation.

In our view, Volkswagen is successfully executing a global automotive strategy and has one of the most aggressive plans in the industry to switch to battery electric vehicles from internal combustion powertrains. A broad array of brands, serving multiple segments, reduces reliance on any one vehicle category. As one of the world's leading volume producers, Volkswagen's economies of scale from common platforms across a number of models enable cost savings unattainable by smaller competitors.

ChargePoint is a leading provider of networked electric vehicle charging hardware and software. The EV charging industry consists of three broad categories of companies: hardware providers, integrators (software providers), and asset owners. ChargePoint focuses on providing integrated hardware and software product offerings and rarely owns assets. It pursues a closed-loop approach—only selling its hardware with its network software attached—which we view as unique among its peers.

Scotts Miracle-Gro is the largest and most recognizable name in the US consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

Narrow-moat Hanesbrands is the market leader in basic innerwear in multiple countries. We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing. While the firm faces challenges from inflation, slowing demand for apparel, higher interest rates, and a highly competitive athleisure market, we think Hanes' share leadership in replenishment apparel categories puts it in position for improving results in the coming years. In May 2021, the firm unveiled its Full Potential plan to bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.

The captive distribution agreements that Amundi has in place with its banking partners are central to the investment case for Amundi. While assets from retail clients only make up around 30% of Amundi's consolidated assets under management, Amundi generates more than 70% of its revenue from retail assets. Amundi originates the bulk of its retail assets through exclusive distribution agreements it has with its banking partners—Credit Agricole, Societe Generale, UniCredit, and Sabadell Asset Management. Assets generated through these captive channels are very profitable as they are cheaper to distribute and the assets tend to be stickier than third-party assets.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

IDP Education is a global leader in education services, providing English language testing and teaching, student placement services, digital marketing, and education events.

We expect SkyCity to deliver strong earnings growth over the next decade, buoyed by the recovery from cyclical lows and solid performance from its core assets in Auckland and Adelaide. SkyCity's Auckland and Adelaide properties underpin the firm's narrow economic moat. SkyCity is the monopoly operator in both jurisdictions, with long-dated licences (exclusive licence for Auckland expires in 2048, and Adelaide licence expires in 2085 with exclusivity guaranteed until 2035). These properties have performed strongly, thanks to SkyCity's solid record of reinvestment, resulting in high property quality, stable visitor growth, and earnings resilience.

Smartsheet is a leading provider of collaborative work management, or CWM, SaaS solutions. The emerging SaaS niche aims to improve the efficiency and productivity of project and process management by displacing widely deployed but suboptimal incumbent tools of email and spreadsheets. Smartsheet’s platform allows nontechnical users to configure, automate, and visualize custom workflows and notifications, dynamically assign tasks and permission data access, and build centralized dashboards for real-time visibility, accountability, and consistency across projects. The platform leverages integrations to adjacent business applications and productivity tools to centralize data, reduce error-prone manual data entry, and improve process efficiency.

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has persistent earnings momentum.

We believe Bath & Body Works has carved out a solid competitive edge in the sizable addressable markets in which it operates. The company’s strong brand intangible asset is supported by its leadership position across the bath and shower and candle air freshener industries in recent years, which has been bolstered by BBW’s quick response to consumer trends. Quantitatively, the narrow moat is reinforced by a 48% average return on invested capital excluding goodwill that we expect the business to generate over the next decade, well ahead of our 8% weighted average cost of capital estimate.

We believe ASML will remain the top lithography equipment provider in semiconductor foundries for at least the next two decades. Taiwan Semiconductor Manufacturing, Intel, and Samsung’s fabs were redesigned one decade ago to make them suitable for extreme ultraviolet lithography, or EUV, a costly and long endeavor, so it is quite unlikely ASML will be displaced from its place in the foundry. In addition, no competitor has yet matched ASML’s technological leadership and the company’s competitive advantage will likely keep expanding as it grows its already-high EUR 4 billion research and development budget.

DWS' new management team has made a positive start in stabilizing the business, but organizational culture does not change overnight and we remain concerned that the brand has been damaged by management instability, multiple restructurings, and the well-publicized greenwashing scandal.